Understanding PF Contributions: What Happens When Salary Exceeds Rs. 6500?

Dear members,

I want to know the applicability for an employee who was drawing a salary of (as per PF act) say Rs. 6400/- (both employee and employer contribute for PF @12% on salary). Upon receiving an annual increment, the salary of the particular employee becomes Rs. 7200/- wef 1st of April of the new financial year. Does the employee continue to be a PF member, and should the employer and employee continue to contribute for PF (12%)? If the contribution is to continue, for how long should it be done, or does the employee's membership come to an end from the day he crosses the Rs. 6500/- salary limit, and the contribution can be stopped? Please clarify urgently.

Regards,
Balu

If the employee's revised salary is Rs. 7200/-, even then it becomes obligatory as the employee had joined the company at 6400 basic. But if some other employee had joined at Rs. 7200/- starting basic, then it is not obligatory for the company to give PF on 7200/-; the company may consider 6500/- for the PF.

Thank you for your opinion. Also, please let us know how long this obligation of contribution continues and what happens if the employee doesn't want to contribute once his salary crosses beyond the PF slab rate of 6500/-. Please clarify.

Regards,
Balu

Please let us know the form number so that both the employer and employee are exempt from the PF obligation.

Your view is different from Ms. Rekha's. Please let us know the correct position for making a decision on this issue.

Hi,

If an employee joins the PF with the salary as mentioned by you, and when he exceeds the limit, the employee cannot withdraw from PF contributions. As per the PF Act, it states that once the contribution starts coming in from the individual, it can only be stopped on resignation or death of the individual to withdraw.

If an employee joins with a higher basic salary of 6500 or above before contributing, use Form No. 11, which will be available in the PF office only. With the use of this form, the employee can opt-out of PF contributions.

Regards,
Rajeev

It is mandatory for an employee whose pay (basic + DA) is less than Rs 6500 to be a member of EPF. Once an employee is covered, he cannot be out of coverage whatever be his salary. This means that by increasing the salary to Rs 7200, an employee cannot opt out from EPF, but he will continue to be covered so long as he is within the establishment.

But the case of ESI is different. When the salary of an insured employee exceeds Rs 10000, he will become out of coverage but from the next contribution period only. As such, if the salary goes up in May, then he has to contribute till the contribution period ends on 30th September.

Regards,

Madhu.T.K

We came across that PF is applicable to the firm having a minimum of 20 workers. Previously, it was for 10 workers. Can you confirm if the information received is correct?

Hi Rajesh,

Until now, it continues to be 20 for companies like IT/ITES, etc. That 10 is applicable to other business activities without using power. According to the parliamentary proceedings, there is a likelihood that the existing ceiling of 20 may come down to 10 in the next half-year. Let's wait for the official notification.

Regards,
Chandru