True cost of hiring in India: PF, ESI, gratuity explained

The "salary" you offer in India is rarely the cost you'll actually carry. Between statutory employer contributions, gratuity provisions, mandatory insurance and operational overhead, the real cost of an Indian hire is typically 10–14% above gross CTC — and more once you factor in HR, payroll and compliance staff.

1. Gross CTC vs. employer cost

Gross CTC is what the candidate negotiates. Employer cost is what hits your P&L. The gap is built from four mandatory components:

• Provident Fund (EPF): 12% of Basic salary, capped on a wage of ₹15,000/month, plus ~1% admin/EDLI charges.
• ESI: 3.25% employer contribution — only applicable when gross is ≤ ₹21,000/month.
• Gratuity provision: 4.81% of Basic (15/26 of one month per year of service), provisioned annually even though paid out at exit.
• Insurance bundle: Mediclaim ₹5L (self + spouse), personal accident, and term life — typically ~₹10,000/employee/year.

2. A worked example

For a software engineer at ₹12,00,000 gross CTC/year (Basic = 50% = ₹6,00,000):

• EPF + admin (capped at ₹15K wage): ~₹23,400
• ESI: not applicable (above ceiling)
• Gratuity provision: ₹28,860
• Insurance: ₹10,000
• Employer cost ≈ ₹12,62,260 — about 5.2% above gross. Add professional tax, LWF, bonuses and one-time setup, and the real number lands closer to 8–10%.

3. Hidden costs nobody quotes you

• Recruitment fees (8–12% of CTC for mid/senior roles)
• Laptop, software licenses, internet stipend
• Payroll software + chartered accountant retainer
• Compliance audits, PT/PF/ESI returns, TDS filings
• Office, utilities, business continuity

4. Why an EOR is usually cheaper than your own entity

Running your own Indian Pvt. Ltd. for under ~25 employees rarely breaks even. Entity setup, statutory audit, MCA filings, transfer-pricing study, GST returns and a small HR team add up to ₹15–25 lakhs/year of fixed overhead before you've hired anyone. An EOR rolls all of that into a single flat fee — at A+ Search, 6% of employment cost.

5. Use the calculator

Plug your role and salary into our India EOR cost calculator for an instant, transparent breakdown — Basic, PF, ESI, gratuity, insurance and our service fee, all included.