PF and ESI for Contract Workers: Whose Duty Is It

If you run a staffing or manpower firm in India, PF and ESI are not optional extras on a contract worker's cost, they are statutory dues with a named duty holder and a backstop. Since the labour codes came into force on 21 November 2025, with the Central Rules notified on 8 May 2026, contract labour is governed by the Occupational Safety, Health and Working Conditions Code 2020 (Chapter XI), which subsumes the old Contract Labour Act, while provident fund and employees state insurance sit under the Code on Social Security 2020. This page answers the question every principal employer and every agency argues over: for contract workers, whose duty is it to deduct and deposit PF and ESI, what does it cost, and what must the agency actually do. It closes with an illustrative rate card for 50 workers so you can see the employer outflow and exactly who deposits it.

When the contract-labour framework applies to you

The OSH Code Chapter XI Part I applies to (i) every establishment in which 50 or more contract labour are employed, or were employed on any day of the preceding twelve months through contract, and (ii) every manpower supply contractor who has employed 50 or more contract labour on any day of the preceding twelve months (s45). It does not apply to work only of an intermittent or casual nature, and the Code clarifies that work performed for more than 120 days in the preceding twelve months, or seasonal work for more than 60 days in a year, is not treated as intermittent. The Code on Social Security defines contract labour as a worker hired for an establishment's work by or through a contractor, including an inter-State migrant worker, but excluding a worker who is regularly and permanently employed by the contractor with periodical increments and social security (s2(18)); a contractor is one who supplies contract labour or produces a result through contract labour, and includes a sub-contractor (s2(19)). Two cautions for your state: the 50-worker figure is the OSH Code position, but principal-employer registration and contractor-licence thresholds are set by notification and vary by state, and PF and ESI coverage thresholds are set separately under the Code on Social Security, so check both against the notified rules for your state. A principal employer who engages labour through a contractor that lacks the required licence is in contravention of the Code (s54).

The PF and ESI numbers to build into every rate

EPF: the employee contributes 12% of wages and the employer contributes 12% of wages. The employer's 12% is split, with 8.33% going to the Employees Pension Scheme up to the pension wage ceiling and the balance to the provident fund, but this split does not change your total 12% outflow. On top of the 12%, EPF carries employer administrative and EDLI charges, so budget a little above 12% and confirm the current charge rates. ESI: the employee contributes 0.75% and the employer contributes 3.25% of wages, and ESI applies where the worker's monthly wage is within the ESI wage ceiling of Rs 21,000 (Rs 25,000 for a person with disability); a worker whose wage is above the ceiling falls outside ESI, subject to the contribution-period rule. The wage base matters: under the Code on Wages, wages means basic pay plus dearness allowance plus retaining allowance, and excludes items such as house rent allowance, conveyance, overtime and the employer's PF contribution, subject to the rule that excluded allowances above one-half of total remuneration are added back into wages (s2(y)). Contribution rates and the ceiling change by notification, so verify the current EPF and ESI rates and the ESI ceiling before you publish a rate card.

Who deposits, and the principal-employer backstop

The contractor is the immediate employer of the contract labour it supplies, so by default the contractor enrols each worker, deducts the employee share, adds the employer share and deposits both every month: EPF through the monthly Electronic Challan cum Return (ECR) against each worker's portable Universal Account Number (UAN), and ESI through ESIC. The Code on Social Security deals expressly with contribution in respect of employees and contractors (s17). The principal employer is the backstop, not a bystander. Under OSH Code Chapter XI, if the contractor fails to pay wages the principal employer must pay in full or the unpaid balance and recover it from the contractor, by deduction from sums due or as a debt, and the appropriate Government can order payment from the contractor's licence security deposit (s55). The same recovery logic is well established for PF and ESI where the contractor defaults, which is why principal employers insist on proof of monthly PF and ESI deposits before releasing the contractor's bill. Welfare facilities for contract labour are the principal employer's duty (s53). For inter-State migrant workers the contractor or employer must extend all benefits available to the establishment's own workers, expressly including benefits under the ESI Act 1948 and the EPF and MP Act 1952 (s60).

The other statutory costs that ride on the same wage

PF and ESI are not the whole statutory load. Bonus under the Code on Wages Chapter IV runs from a minimum of 8.33% to a maximum of 20% of wages, subject to eligibility and ceilings as notified. Gratuity is 15 days wages for each completed year of service (the 15/26 factor) after five years of continuous service, and fixed-term employees earn pro-rata gratuity without the five-year condition. Paid leave under the OSH Code accrues at one day of leave for every 20 days worked, so treat it as a real cost element in costing (Chapter VII, s32). On the tax side, manpower supply and staffing services attract GST at 18% under SAC 9985, charged on the full billed value of the supply and not only on your margin, with a compliant tax invoice showing both GSTINs, the invoice number and date, the service description, the billing period, and the CGST plus SGST split (intra-state) or IGST (inter-state); the recipient claims input tax credit and reconciles it through GSTR-2B. Security services are a special case: also at 18% but under reverse charge (Notification 13/2017-Central Tax (Rate) as amended by 29/2018, effective 1 January 2019) the registered recipient pays the GST when the supplier is not a body corporate, whereas general manpower supply is not under reverse charge by default. Your client also deducts TDS on the labour-supply payment under section 194C of the Income-tax Act (1% if you are an individual or HUF, 2% otherwise), which you reconcile through Form 26AS.

What a manpower agency must actually do

Translate the rules into a monthly operating rhythm. Hold a valid contractor licence under OSH Code Chapter XI, with a separate licence for each principal employer, and make sure the principal employer holds its own registration; confirm the exact forms and thresholds against your state's notified rule (the legacy set carried into the rules is Form I for principal-employer registration, Form IV for the contractor licence application, Form V for the principal employer's certificate and Form VI for the licence). Enrol every worker with a UAN, run the monthly ECR and deposit EPF, and register with and pay ESIC on time. Raise a compliant GST invoice at 18% on the full value with the correct CGST/SGST or IGST split and the correct SAC. Deduct only the workers' share from wages, never charge the worker any fee or commission (s49), pay wages by bank or electronic transfer and inform the principal employer of the amount paid (s55). Keep proof of every PF and ESI deposit ready, because that proof is what unlocks your bill from the principal employer, and hold professional tax, Shops and Establishment and, for security services, PSARA registrations where they apply, confirming slabs, fees and validity against each state.

Sources, last verified and disclaimer

Last verified: 20 September 2026, against the Occupational Safety, Health and Working Conditions Code 2020 (Chapter XI and Chapter VII), the Code on Social Security 2020, the Code on Wages 2019 and the tax provisions cited. Contribution rates, wage ceilings, coverage thresholds and form numbers change by notification and vary by state, so reconfirm each figure before you rely on it. Disclaimer: this page is general information for staffing and manpower firm owners, not legal or tax advice, and it does not create a professional relationship. Because PF, ESI and tax obligations carry direct financial and legal consequences, confirm the current position with a qualified professional and with the notified rules for your state before acting. Reviewer: pending named legal review.

Illustrative example: PF and ESI rate card for 50 contract workers

Illustrative example only, using round assumptions to show the mechanics, not actual rates for any month or state. Assume 50 contract workers, each at a monthly wage of Rs 15,000, and for simplicity treat that Rs 15,000 as the base for both EPF and ESI (a real rate card must compute EPF on basic plus dearness allowance and ESI on gross wages up to the ceiling, so split the wage in practice). All figures below are before EPF administrative and EDLI charges.

Per worker per month: - Employer EPF at 12% = Rs 1,800 - Employer ESI at 3.25% = Rs 487.50 - Employer statutory subtotal = Rs 2,287.50 - Employee EPF at 12% deducted from wages = Rs 1,800 - Employee ESI at 0.75% deducted from wages = Rs 112.50

For 50 workers per month: - Employer EPF = Rs 90,000 - Employer ESI = Rs 24,375 - Employer statutory outflow = Rs 1,14,375 - Employee EPF deducted = Rs 90,000 - Employee ESI deducted = Rs 5,625 - Total EPF deposited via ECR (employer plus employee) = Rs 1,80,000 - Total ESI deposited (employer plus employee) = Rs 30,000 - Total remitted to EPFO and ESIC = Rs 2,10,000

Against a monthly wage bill of Rs 7,50,000, the employer statutory load is Rs 1,14,375, that is 15.25% (12% EPF plus 3.25% ESI), before admin and EDLI charges, bonus, gratuity, paid leave, GST and your margin. Over a year the employer statutory outflow is Rs 13,72,500.

Who deposits: the contractor, as the immediate employer, deposits both the EPF (ECR against each worker's UAN) and the ESI. If the contractor defaults, the principal employer becomes liable to pay and recovers the amount from the contractor, including from the contractor's licence security deposit (OSH Code 2020, s55). Verify the current EPF and ESI rates, the EPF administrative and EDLI charges and the ESI ceiling before turning this illustration into a quote.

Employer checklist

• Hold a valid contractor licence under OSH Code Chapter XI, a separate licence for each principal employer; confirm the threshold and forms against your state's notified rule.
• Enrol every contract worker with a UAN and run the monthly ECR; deposit employer plus employee EPF each month.
• Register with ESIC and deposit ESI (employer 3.25%, employee 0.75%) for every worker within the wage ceiling.
• Deduct only the employee share from wages; never charge the worker any fee or commission (OSH Code s49).
• Pay wages by bank or electronic transfer and inform the principal employer of the amount paid (OSH Code s55).
• Raise a compliant GST invoice at 18% (SAC 9985) on the full billed value with the correct CGST/SGST or IGST split.
• Reconcile client TDS deducted under section 194C through Form 26AS.
• Keep proof of every PF and ESI deposit to release the principal employer's bill.
• Hold professional tax, Shops and Establishment and, for security services, PSARA registrations where they apply; verify slabs, fees and validity by state.
• Confirm current EPF and ESI rates, EPF admin/EDLI charges, the ESI ceiling and all coverage thresholds before quoting.

For the worker

• Your PF sits in a portable Universal Account Number (UAN) that stays with you across employers; ask for your UAN and check that deposits are being made.
• ESI covers you where your monthly wage is within the notified ceiling (Rs 21,000, or Rs 25,000 for a person with disability); confirm the current ceiling.
• The agency cannot charge you any fee or commission for the job (OSH Code s49).
• If the contractor does not deposit your PF or ESI, the principal employer can be held liable, so you can raise it with either.
• You are entitled to paid annual leave accruing at one day for every 20 days worked under the OSH Code.

Common questions

Check these for your state

These items are set state by state. Confirm each against your state's current notified rule before you rely on it.

• Current EPF and ESI contribution rates and the EPF administrative and EDLI charge rates: verify against the latest EPFO and ESIC notifications before publishing (the pack instructs verifying current rates).
• ESI wage ceiling (Rs 21,000, Rs 25,000 for persons with disability): confirm the current ceiling before relying on it.
• EPF pension (EPS) wage ceiling used for the 8.33% split: confirm the current pension wage ceiling figure; the page states the mechanism only.
• Contract-labour licence and principal-employer registration thresholds (stated as 50 under OSH Code s45): verify against the state's notified rule, since thresholds vary by state.
• PF and ESI coverage thresholds for the establishment and the contractor: confirm against the notified provisions of the Code on Social Security 2020 and its schemes.
• Form numbers (Form I, IV, V, VI): confirm the exact form numbers against the state's notified rules before citing.
• Professional tax slabs, Shops and Establishment registration and PSARA licence fees and validity: verify against each state's notified rule.
• GST reverse charge applicability to the specific service line (general manpower supply is not RCM by default; security services from a non-body-corporate to a registered recipient are): confirm the classification per contract.
• Gig and platform worker aggregator contribution rate (if applicable to any part of the workforce): as per the notified scheme, confirm the rate.
• Whole page pending named legal review before publication.