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Employee Provident Fund (EPF) Explained: Your Guide To Retirement Benefits

Managing the Employee Provident Fund (EPF) can be complex for SMEs and startups. Compliance, calculation accuracy, record-keeping, and integration present obstacles. Streamlining processes and staying updated with EPF compliance are crucial for effective management and fulfilling employee financial security requirements.

The Employee Provident Fund (EPF) plays a vital role in securing financial stability and retirement benefits for employees. However, managing EPF can be challenging for SMEs and startups. In this blog, we explore the purpose and benefits of EPF, the eligibility process, contribution percentages, and the common challenges faced by businesses. 

We also highlight the advantages of using an Employee Management System to streamline EPF calculations and ensure compliance. Let’s dive into understanding how to simplify your EPF journey and empower your employees’ financial well-being.

What is an Employee Provident Fund (EPF)?

The Employee Provident Fund, commonly known as EPF, is a government-established social security scheme in India designed to offer employees financial stability and retirement benefits.

Under this scheme, both employees and employers contribute a certain percentage of the employee’s salary towards the EPF account. The accumulated funds in the EPF account serve as a nest egg for employees during their retirement years.

Employee Provident Fund (EPF) Explained

Purpose and Benefits of EPF

The Employee Provident Fund (EPF) serves a crucial purpose in ensuring financial security and retirement benefits for employees. It is a social security scheme that offers numerous advantages to both employees and employers. 

Let’s delve into the purpose and benefits of EPF in detail:

  • Ensures Financial Security for Employees
  1. EPF encourages employees to save for retirement, providing them with a substantial corpus for their post-employment years.
  2. EPF cultivates disciplined savings habits and facilitates long-term financial planning.
  • Offers Retirement Benefits
  1. Employees can make a lump sum withdrawal of their accumulated EPF balance upon retirement.
  2. EPF provides the option to convert a portion of the EPF balance into a pension, ensuring a regular income stream after retirement.
  • Provides Tax Benefits
  1. Employee and employer contributions to EPF are eligible for tax exemption.
  2. The interest earned on EPF contributions is tax-free, making it an attractive investment avenue.
  • Ensures Social Security
  1. EPF offers life insurance coverage to employees, providing financial protection to nominated beneficiaries in the event of the employee’s demise.
  2. In case of permanent disability, employees are entitled to disability benefits, including a monthly pension and medical benefits.
  • Offers Loan Facilities
  1. Employees can avail themselves of housing loans against their EPF balance for the purchase or construction of a house, reducing their financial burden.
  2. EPF allows for medical advances, enabling employees to withdraw funds for emergency medical expenses or treatments.
  • Benefits for Employers
  1. EPF enhances employee retention and motivation, demonstrating an employer’s commitment to their employees’ financial well-being.
  2. Complying with EPF regulations provides legal protection to employers and helps maintain a positive business image.

Purpose and Benefits of EPF

EPF Eligibility and Enrollment Process: How to Avail It?

To enroll in the Employee Provident Fund (EPF) scheme, employees need to meet certain eligibility criteria. The eligibility requirements for EPF enrollment are as follows:

Employee Eligibility

  1. Age: Any employee who is 18 years or older can be enrolled in EPF.
  2. Salary: Employees with a monthly salary of up to Rs. 15,000 are eligible for mandatory EPF enrollment. However, employees with a salary exceeding Rs. 15,000 can also join the EPF voluntarily with the consent of their employer.
  3. Nature of Employment: Both permanent and contractual employees, including apprentices, are eligible for EPF, provided they meet the salary criteria.

Employer Eligibility

  1. Registration: Employers are required to register their establishment with the Employees’ Provident Fund Organization (EPFO) to facilitate EPF enrollment for their employees.
  2. Employee Count: Employers with 20 or more employees must enroll their employees in EPF. However, establishments with fewer than 20 employees can also voluntarily register with the EPFO.

The steps of the Enrollment Process for EPFO

The enrollment process for EPF involves the following steps:

  1. Employee Declaration and Documentation
  • New employees must fill out Form 11, which serves as a declaration and nomination form for EPF and other social security schemes.
  • Employees need to provide their personal details, such as name, date of birth, address, and Aadhaar number, along with bank account details.
  • Employees must also nominate their beneficiaries who will receive the EPF balance in case of their unfortunate demise.
  1. Employer Registration
  • Employers need to register their establishment with the EPFO by submitting Form 9, which includes details about the organization, such as name, address, and nature of business.
  • Employers also need to obtain an Employer Identification Number (EPFO code) to facilitate EPF contributions.
  1. EPF Account Generation
  • Once the employer registers with the EPFO and the employee provides the necessary details, the EPFO generates a unique EPF account number for the employee.
  • The EPF account number is linked to the employee’s Universal Account Number (UAN), which remains constant throughout their career, even if they change jobs.
  1. EPF Contribution Deduction
  • Employers are responsible for deducting the employee’s share of EPF contribution from their salary each month.
  • The employee’s contribution is deducted at the rate of 12% of their basic salary, which includes basic pay, dearness allowance, and retaining allowance if applicable.
  • Employers contribute an equal amount to the employee’s EPF account, with the total contribution amounting to 24% of the employee’s basic salary.

Remittance and Reporting

  1. Employers are required to remit the deducted EPF contributions to the EPFO within 15 days from the end of each month.
  2. Employers must file monthly EPF returns, providing details of contributions made for each employee, along with other relevant information, through the EPFO’s online portal.

It is important for employers to ensure timely and accurate enrollment of eligible employees in EPF to avoid penalties and non-compliance issues. By adhering to the EPF enrollment process and maintaining proper documentation, businesses can fulfill their obligations and contribute to the financial security of their employees.

Note: EPF enrollment and compliance requirements may be subject to changes and updates from the EPFO. Employers should stay informed about any amendments to the EPF rules and regulations to ensure ongoing compliance.

What is the contribution percentage of the employee and the employer?

The contributions made by both the employee and the employer have different allocations within the Employee Provident Fund (EPF) scheme.

As an employee, your contribution goes directly into the EPF. On the other hand, the employer’s contribution is divided among the EPF, the Employees’ Pension Scheme (EPS), and the Employees’ Deposit Linked Insurance Scheme (EDLIS).

Here’s a breakdown of the contribution percentages:


Contribution Type Percentage
EPF 12%


Contribution Type Percentage
EPF 3.67%
EPS 8.33%
EDLIS 0.5%
EPF Administrative Charges 0.85%
EDLIS Administrative Charges 0.01%


Let’s take a look at some calculations to understand how the contributions work, considering two different salary scenarios:

  1. Basic Salary below Rs. 15,000:

For example, Employee A has a basic salary of Rs. 3,500.

Contribution Type Percentage Amount
EPF (Employee) 12% Rs. 420
EPS (Employer) 8.33% Rs. 292
EPF (Employer) 3.67% Rs. 128


  1. Basic Salary of Rs. 15,000 or above:

Let’s consider Employee B with a basic salary of Rs. 25,000.

Situation 1: The employer and employee decide to contribute based on the Basic salary of Rs. 25,000.

Contribution Type Percentage Amount
EPF (Employee) 12% (of Rs. 25000/-) Rs. 3,000
EPS (Employer) 8.33% (of Rs. 15000/-) Rs. 1,250
EPF (Employer) 3.67% (of Rs. 15000/-) Rs. 917.50

Situation 2: The employer and employee decide to contribute based on the Basic salary of Rs. 15,000.

Contribution Type Percentage Amount
EPF (Employee) 12% (of Rs. 15000/-) Rs. 1,800
EPS (Employer) 8.33% (of Rs. 15000/-) Rs. 1,250
EPF (Employer) 3.67% (of Rs. 15000/-) Rs. 550

In both situations, the contributions are based on a maximum ceiling of Rs. 15,000 for both the employee and the employer. 

However, an employee has the freedom to contribute at a higher rate to the EPF, whereas the employer’s contribution remains limited to the maximum ceiling of Rs. 15,000.

Rate of Interests earned on EPF contributions

The Employees’ Provident Fund (EPF) interest rate for the financial year 2022-23 is 8.15%. This rate is applicable to all deposits made from 1st April 2022 to 31st March 2023. 

The EPF interest rate is reviewed on a yearly basis by the Central Board of Trustees (CBT) of the Employees’ Provident Fund Organisation (EPFO). 

The CBT takes into account factors such as the performance of the economy, the interest rates prevailing in the market, and the need to provide a reasonable return on investment to EPF subscribers.

EPF Management Challenges for SMEs and Startups

Managing the Employee Provident Fund (EPF) can be challenging for small and medium-sized enterprises (SMEs) and startups. Here are some common challenges:

  • Regulatory Compliance: Understanding and complying with EPF rules and regulations can be overwhelming.
  • Calculation Accuracy: Ensuring accurate EPF contribution calculations for each employee can be complex.
  • Record-Keeping: Maintaining comprehensive EPF records and documentation is crucial for audits and inspections.
  • Handling Employee Transitions: Managing EPF accounts for outgoing employees and new hires can be time-consuming.
  • Integration with Payroll Systems: Integrating EPF management with payroll systems can be a significant challenge.
  • Compliance Audits: SMEs and startups must be prepared for periodic EPF audits and inspections.

Overcoming these challenges requires proactive measures, technology solutions, and professional guidance. Streamlining processes and staying updated with EPF compliance can help SMEs and startups effectively manage EPF and fulfill their obligations towards employee benefits.

Benefits of Using an Employee Management System

To overcome the challenges associated with EPF management, businesses can leverage Employee Management Systems, such as SalaryBox. These systems offer numerous benefits that streamline EPF calculations, record-keeping, and reporting. 

Some of the essential benefits are:

  • Automated EPF Calculations: Employee Management Systems automate complex EPF calculations, ensuring accurate deductions.
  • Efficient Record-Keeping: These systems provide a centralized platform for organized EPF data storage and easy access.
  • Accurate Reporting: Generate detailed reports on EPF deductions, contributions, and compliance status.
  • Time Savings: Streamline EPF processes, saving valuable time for HR and finance teams.
  • Reduced Errors: Minimize human errors in EPF calculations and record-keeping.
  • Seamless Payroll Integration: Integrate with payroll systems for accurate EPF deductions during salary disbursements.
  • Compliance and Audit Readiness: Ensure compliance with EPF regulations and facilitate smooth audits.


Understanding and managing the Employee Provident Fund (EPF) is crucial for ensuring the financial security and retirement benefits of employees. However, the complexity of EPF calculations, compliance requirements, and record-keeping can pose challenges for SMEs and startups. To overcome these challenges and streamline EPF management, implementing an Employee Management System like SalaryBox can be immensely beneficial.

SalaryBox offers automated EPF calculations, efficient record-keeping, accurate reporting, and seamless payroll, thus ensuring compliance with EPF regulations. By leveraging SalaryBox, businesses can save time, reduce errors, and be audit-ready while fulfilling their obligations towards employee benefits.

Make the smart choice and simplify your EPF management with SalaryBox. Empower your employees’ financial well-being while streamlining your HR and finance processes. Try SalaryBox today and witness the transformative power of an advanced Employee Management System.

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