En employer is establishing a new factory and most of the employees will be transferred from the existing functional Unit where employees' PF contribution is being paid on actuals which is more than Rs. 15000/-. In the new Unit, he wants to cap PF contribution on Rs. 15000/- which is permissible based on the Marathwara Gramin bank judgment. Is there any prescribed formality concerning PF Act? Please suggest.

In the meantime, they have also given an offer to some outsiders and these prospect employees have put the condition that they should be allowed to contribute, PF on the actual basic with equal contribution from the Employer. Is it possible & advisable to have two different PF contribution systems? Please also suggest formalities & possibilities strictly with respect to compliance with the Act. Para 26(6) of the Scheme puts no burden on the employer to contribute but in this case the employer has also to contribute on the actuals.

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I doubt whether you can do this exercise now. Once you started by making contributions on actual wages, you can not reduce/cap wages to Rs.15000/- for making contributions of PF.

In this connection, please refer to Sec-12 of Employees Provident Fund & Misc. Provisions Act,1952
which is read as follows:-

[12. Employer not to reduce wages, etc.—No employer in relation to 10[an establishment] to which
any 11[Scheme or the Insurance Scheme] applies shall, by reason only of his liability for the payment of
any contribution to 12[the Fund or the Insurance Fund] or any charges under this Act or the 11[Scheme or
the Insurance Scheme], reduce, whether directly or indirectly, the wages of any employee to whom the
11[Scheme or the Insurance Scheme] applies or the total quantum of benefits in the nature of old age
pension, gratuity 13[Provident Fund or Life Insurance] to which the employee is entitled under the terms
of his employment, express or implied.]


Before implementing the proposed action, please check with PF authorities.

From India, Aizawl

You can cap the PF contribution at any time as it is the specified statutory limit in the act.
The courts have already decided on this matter.

However, if you are looking at CTC, then the action may amount changing the terms of employment and you need concurrence of the employees. Also, they effectively earn less, so you need to be aware of the Industrial Relations aspect of it, specially on the matter of disgruntled employees

From India, Mumbai

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