A. Prasad Started The Discussion:
We are in the process of getting new registration number for PF contributions. While in discussions and finding our salary structure with 40% basic on total gross salary, the Enforcement Officer of EPFO had pointed out that there should be at least 70% of basic & DA on total gross salary. And he was telling that it is mandatory when asked about many organisations which do not follow this system. Ultimately, he said that I can maintain at least 65% and not less than that.
My question is that, whether we should structure salary of employees with 70% or 65% basic & DA on total gross salary as a mandatory? As per my observations, many companies do not follow this rule and they go according to their own policy.
Very recently, I have joined an organisation (Service sector) which is 4 years old and not maintained compliances under any law in force in Karnataka or Central laws. They have got PF registration number a couple of years ago, but not even remitted contributions and now we got notices from the PF office.
Please discuss and respond to this query urgently with your valuable comments and suggestions on the above.
Provident Fund is contributed as percentage (12%) of Salary. Salary for this purpose includes Basic salary and Dearness Allowance. If you say that out of, say 6500 rupees paid to an employee, Rs 6000 is HRA or other allowance and only Rs 500 is the salary (basic + DA) it will be deemed as an attempt to reduce employer's contributions. That's why the Enforcement Officer has asked you to bring at least 70/ 65 % of the gross as Basic + DA. In fact, the law also requires to maintain the basic salary and dearness allowance in such proportion. But there is no hard rule to say that the Basic + DA should be 70%. Normally, the Basic Salary is the actual salary and DA is taken as a percentage of this basic. Similarly, HRA is also given as percetage of basic.
As Madhu pointed out it is not mandatory to have 70% of gross salary as the basic & dearness allowance. Usually organization will not follow this kind because of IT. the more the allowances are the less IT can be deducted..
U too can go ahead with 40 % of Gross as basic. Regarding ur query of not remitting the contributions probably u better approach some public relation officer. They will guide u better about what to do..
except in the case of minimum wage or otherwise if it is mentioned that minimum wage is the basic , the employer can make any bifurcation which suits to its own policy where the wages are paid more than that of minimum wage.
none of the government authority can give any direction to change the same.
hope the reply suits to your requirement.
Here I would like to mention that what ever may be the % related to Basic, DA etc for calculation of PF contribution.. But the Admin charges on PF & EDLI are calculated based on the total gross salary of an employee. Whereas in many companies they calculate that also on the basis of total of Basic+DA which in my oipinion is wrong. Tomorrow the PF authorities may create problem. If i am wrong correct me.
there is no rule that 70% should be basic+DA,however u haved to pay PF on minimum
wages.but if u keep 40% of total gross it seems that u want to avoid PF contribution.
suppose someone gross is 10000 than according to your concept 4000 will be basic
than where3 u will adjust rest 6000.
in my veiw 6000 should be basic and 2400 can be HRA and rest can be adjusted in other head.
your other point is little serious pls short out that recovery matter
j s malik
Dear Mr Kumar,
As per the PF Act, Wages means Basic and DA and not Gross Salary and hence there is no need to contribute Admin. / EDLI charges on Gross Salary.
The Enforcement Officer has no right to say the Basic and DA should be 70% of Gross Salary and there is no law provides for it. The normal industry standard of BP & DA is 40% on Total Gross Salary. As one of our friends rightly said, you should not have Rs.500 as Basic and Rs.6000 as HRA with total Gross Pay of rs.6500/-.
Since you are new to the PF, I suggest you to make restrict PF contributions with a max. salary of Rs.6500/- as stipulated in the Act.
A B Srinivasan
Thank you Mr.Srinivasan for clearing my doubt. Since yesterday I am in search of the article in support of my opinion on admin charges. If it is found I will revert back to you for further clarification with regards to the admin charges.
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