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PF & ESI Compliance for Newly Incorporated Companies

Every newly incorporated company is assigned the EPF and ESI Registration Numbers during the incorporation process itself, irrespective of whether they are eligible for the same in terms of their employee strength. It is unclear whether such companies, to whom PF or ESI registration may otherwise not have been applicable, are still required to comply with PF/ESIC rules. This article examines the legal provisions of PF and ESI compliance by newly incorporated companies in India.

BRIEF SUMMARY
Starting a new venture brings excitement and responsibility, especially when it comes to navigating the intricacies of Employees’ Provident Fund (EPF) and Employees’ State Insurance Corporation (ESIC) compliance. In India, even newly incorporated companies are assigned EPF and ESIC registration numbers, irrespective of immediate eligibility. This blog untangles the complexities surrounding EPFO and ESIC regulations for new businesses, addressing when these mandates apply, considerations like marking ESIC registration as “dormant,” and handling compliance notices from PF or ESIC departments. Join us as we explore the compliance landscape to empower new entrepreneurs with essential insights.

About EPFO

The Employees’ Provident Fund Scheme (EPF) in India acts as a safety net for working professionals, providing both long-term retirement savings and short-term financial assistance. Every month, employees and employers contribute a percentage of their salary to the scheme, which accumulates in a personal fund that can be accessed for retirement, specific needs like medical treatment or house purchase, or even unemployment. This scheme not only provides financial security for workers but also encourages savings and economic stability. However, the EPF Scheme only applies when the number of employees is more than twenty in the establishment. Companies can opt for voluntary coverage for their employees with their consent.

About ESIC

ESIC is a comprehensive insurance package for employed individuals in India, offering immediate financial and medical support during contingencies. It covers sickness, maternity, disablement, dependents, and death benefits. ESIC also operates a vast network of hospitals and dispensaries across India, offering subsidised medical care for insured employees and their dependents. The ESIC is mandatory for companies employing ten or more employees.

Applicability of EPFO/ESIC

Particulars EPFO ESIC
Employee Threshold
20 or More
10 or More
Coverage
  • Mandatory after 20 or more employees
  • However, the company can take voluntary coverage
  • Mandatory after 10 or more employees
  • No Voluntary Coverage
Return Filing
Mandatory after registration in both ESIC and EPFO
Relief to newly incorporated Companies
Newly incorporated companies are issued a registration number under the PF and ESIC, regardless of whether or not they are eligible for coverage. The central government has issued a Press Release stating that such companies are not required to file PF or ESIC returns as they are not yet eligible for coverage. However, once the number of employees reaches the threshold for applicability, these companies will be required to comply with the EPFO and ESIC Acts, respectively. Please read the press release.
Newly incorporated companies are not required to comply with the EPFO (Employee Provident Fund Organization) or ESIC (Employees’ State Insurance Corporation) provisions until the number of employees reaches 20 for PF (Provident Fund) and 10 for ESIC. Please note that ESIC coverage cannot be taken voluntarily, so compliance with ESIC is only possible once the number of employees reaches ten or more. In the case of PF, companies can opt for voluntary coverage with the consent of most employees. In that case, compliance with the PF scheme will become mandatory.

Marking of ESIC Registration as “Dormant”

The ESIC Department came up with Circular No. P-11/14/19/Misc/02/2022-Rev. II. Dated 21/11/2022, which requires that newly registered companies on or after 15.02.2020 shall comply with the ESI Act, 1948 provisions only when they reach the threshold limit of employment under the ESI Act (Ten at present). Suppose the companies registered through the MCA portal are found not coverable per the ESI Act’s statutory provisions. In that case, they are not required to comply for the next six months or until they reach the threshold ESIC coverage, whichever is earlier. However, such companies will have to mark the establishment status on the ESIC portal as “Dormant” on their first login and after every six months. Read the Circular here.

Notice of Non-Compliance from PF or ESIC Department

Sometimes, the PF or ESIC office may send a notice to an establishment of non-compliance with regards to the non-filing of PF or ESIC Return. This happens because the establishment is registered with them. In such cases, the establishment should reply to the notice stating the reason for non-filing. For instance, the number of employees may not have reached the threshold. We can assist with drafting and filing a reply to such notices.

To summarise, newly incorporated companies are issued a registration number under the PF and ESIC, regardless of whether or not they are eligible for coverage. However, such companies are not required to file PF or ESIC returns until they reach the threshold limit of employment under the respective Acts. While ESIC coverage cannot be taken voluntarily, companies can opt for voluntary coverage under the PF scheme with the consent of most employees. Once the number of employees reaches the threshold limit, compliance with the EPFO and ESIC Acts becomes mandatory. In case of non-compliance, the establishment should reply to the notice stating the reason for non-filing, and we can assist with drafting and filing a reply to such notices.

Conclusion

EPFO Compliance

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