Introduction
Of all the changes introduced by India’s four new Labour Codes effective 21st November 2025, the impact on EPF and ESI calculations is perhaps the most immediately felt in payroll operations. The Employees’ Provident Fund and Employees’ State Insurance are the two largest statutory contribution programmes in India — covering hundreds of millions of workers and touching every payroll cycle.
The Code on Social Security, 2020 subsumes both the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 and the Employees’ State Insurance Act, 1948. As of mid-2026, the transition is no longer purely theoretical — the EPF side has now been formally replaced with new schemes, while ESI remains in a transition window. Here’s exactly where each stands today.
Current Status — What Applies Right Now
EPF — Replaced. On 29th June 2026, the Ministry of Labour and Employment notified the Employees’ Provident Fund Scheme, 2026, the Employees’ Pension Scheme, 2026, and the Employees’ Deposit Linked Insurance Scheme, 2026 — collectively replacing the corresponding schemes under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. These new schemes came into force on Gazette publication and are deemed effective from 21st November 2025, the date the Labour Codes themselves came into force. Contribution rates are unchanged (12% employer, 12% employee), and the ₹15,000/month wage ceiling continues — but crucially, contributions are now computed on the Code on Social Security’s “wages” definition, not the old “basic wages” term from the 1952 Act.
ESI — In transition, not yet replaced. The Code on Social Security (Central) Rules, 2026 were notified on 8th May 2026, operationalising several SS Code chapters including the exemption framework for EPF and ESI establishments. However, a dedicated ESI Scheme under the SS Code has not yet been notified. The existing ESI Act framework and its schemes continue to apply during the one-year transition period, running until 20th November 2026. There is a reasonable legal argument — reinforced by Ministry FAQs issued 16th March 2026 — that the new wages definition already governs ESI contribution computation even during this transition, but formal clarity awaits the dedicated ESI scheme.
The key takeaway: EPF has fully moved to its new statutory footing; ESI is still running on the old machinery with the new wages definition layered on top, pending its own scheme notification.
How EPF Is Affected
Old vs New Calculation
Old structure example:
- Gross salary: ₹30,000/month
- Basic: ₹9,000 (30%), DA: ₹0
- EPF base: ₹9,000
- Employee PF (12%): ₹1,080 | Employer PF (12%): ₹1,080
- Total monthly PF: ₹2,160
New calculation (50% floor):
- Deemed wages: ₹15,000 (50% of ₹30,000)
- Employee PF (12%): ₹1,800 | Employer PF (12%): ₹1,800
- Total monthly PF: ₹3,600
Monthly PF increases by ₹1,440 per employee. For 500 employees — that’s ₹86.4 lakhs additional annual EPF cost.
EPF Wage Ceiling — ₹15,000
The EPF wage threshold of ₹15,000/month remains unchanged under the EPF Scheme, 2026. With the new wages definition, an employee with gross ₹25,000 and Basic ₹8,000 now has deemed wages of ₹12,500 (50% of ₹25,000) — below ₹15,000, making them mandatorily covered if not already enrolled.
November 2025 — Prorate Calculation
Since the Code came into effect on 21st November 2025 (mid-month):
- 1st–20th November: calculated on existing salary structure
- 21st–30th November: calculated on revised wages per new definition
How ESI Is Affected
ESI Coverage — Expanded
The Code on Social Security expands ESI coverage to:
- All establishments with 10 or more employees — pan-India, no geographic restriction
- Mines — included for the first time
- Hazardous establishments — even with a single employee
ESI Wage Ceiling — ₹21,000
The ESI ceiling of ₹21,000/month remains unchanged and no revision has been formally notified as of mid-2026. What changes is the base — “wages” for ESI purposes now means Basic + DA (subject to the 50% floor), excluding HRA — though employers should note this basis is treated as the reasonable working position rather than a fully settled one, pending the dedicated ESI scheme.
ESI Worked Examples
Example A — Employee re-enters ESI:
| Component | Amount |
|---|---|
| Basic | ₹12,000 |
| DA | ₹6,000 |
| HRA | ₹6,000 |
| Monthly Gross | ₹24,000 |
- Current ESI wages (Basic+DA+HRA): ₹24,000 → above ₹21,000 → exits ESI
- Post-Code ESI wages (Basic+DA): ₹18,000 → below ₹21,000 → must be covered
Example B — Contribution base reduces:
| Component | Amount |
|---|---|
| Basic | ₹8,000 |
| DA | ₹4,000 |
| HRA | ₹4,000 |
| Monthly Gross | ₹16,000 |
- Current ESI wages: ₹16,000 → contributions on ₹16,000
- Post-Code ESI wages: ₹12,000 → contributions on ₹12,000
- Employer ESI (3.25%): reduces from ₹520 to ₹390
ESI Contribution Rates — Unchanged
- Employee: 0.75% of wages
- Employer: 3.25% of wages
- Total: 4% of wages
What changes is only the wages base — and even that remains subject to formal confirmation until the dedicated ESI scheme is notified.
Voluntary ESI and Hazardous Units
Voluntary ESI: Establishments with fewer than 10 employees can now opt into ESI voluntarily — beneficial for startups wanting to provide formal social security.
Hazardous Establishments: Must be covered under ESI even with a single employee — significant expansion for chemical plants, explosive manufacturers, and similar high-risk industries.
Universal Account Number (UAN) — What’s New
The Code on Social Security introduces a universal, portable UAN linked to Aadhaar:
- Workers retain the same UAN across all employers
- Benefits portable across states regardless of worker migration
- Single UAN covers EPF, ESI, and other social security benefits
UAN seeding and Aadhaar linking are now central to the compliance framework — no longer optional.
Gig Workers and Aggregators
For the first time, gig and platform workers have statutory social security protections:
Aggregators must:
- Contribute 1–2% of annual turnover to the Social Security Fund
- Capped at 5% of total payments made to gig/platform workers
- Delayed contributions attract 12% per annum interest
EPF and ESI for Fixed-Term Employees
FTEs receive equal treatment:
- EPF enrollment from day one if wages below ₹15,000/month
- ESI coverage from day one if wages below ₹21,000/month
- No minimum tenure for enrollment
Common Errors to Avoid
- Continuing old EPF contributions on Basic+DA without applying the 50% floor under EPF Scheme, 2026
- Not re-checking ESI eligibility after wages restructuring
- Ignoring the prorate calculation for November 2025
- Treating all allowances uniformly — only specifically listed exclusions apply
- Assuming ESI geographic exemptions still apply — pan-India now
- Assuming EPF still runs under the 1952 Scheme — it doesn’t, as of 29th June 2026
HR Action Checklist
Immediate:
- Re-calculate deemed wages for all employees
- Update EPF contribution calculations in payroll software to reference EPF Scheme, 2026
- Re-run ESI eligibility check under new wages definition
- Register newly eligible employees with ESIC
- Calculate prorate contributions for November 2025
- Check Aadhaar-UAN seeding for all employees
- Check hazardous establishment status
Short-term: 8. Update payroll software for new wages definition 9. Prepare revised Form 16 projections — higher PF means lower taxable salary 10. Map gig/platform worker obligations if applicable 11. Train payroll team on all changes 12. Track for the dedicated ESI Scheme notification, expected before the 20th November 2026 transition deadline
Frequently Asked Questions
Has the EPF Act been replaced by the Labour Codes? Yes. On 29th June 2026, the EPF Scheme, 2026, EPS Scheme, 2026, and EDLI Scheme, 2026 were notified, replacing the corresponding schemes under the EPF and MP Act, 1952. These came into force on Gazette publication and are deemed effective from 21st November 2025.
Has the ESI Act been replaced? Not yet. The SS Code (Central) Rules, 2026 were notified on 8th May 2026, but a dedicated ESI scheme under the SS Code is still pending. The existing ESI Act framework continues to apply until the one-year transition period ends on 20th November 2026, or until a new scheme is notified — whichever is earlier.
How does the new wages definition affect EPF contributions? If Basic+DA is less than 50% of gross salary, EPF must now be calculated on 50% of gross (deemed wages), not just Basic+DA. This increases both employee and employer contributions.
What is the EPF contribution rate under the Labour Codes? Unchanged at 12% each for employee and employer under the EPF Scheme, 2026. What changed is the wages base, not the rate.
Which employees are now covered under ESI? All employees with monthly wages below ₹21,000 in establishments with 10+ employees, plus all employees in hazardous establishments regardless of headcount.
Do fixed-term employees get EPF and ESI benefits? Yes — from the first day of engagement if wage thresholds are met.
What is the aggregator contribution rate for gig workers? 1-2% of annual turnover, capped at 5% of total payments made to gig/platform workers.
Conclusion
The EPF and ESI changes under the new Labour Codes represent the most significant recalibration of India’s social security framework in decades. EPF has now formally moved to its 2026 schemes; ESI is following on a slightly longer runway. For HR and payroll teams, the challenge is recalculation, re-mapping, and system updates — all under a tight and moving timeline.
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