Is PF Membership Mandatory When Basic Salary Rises from Rs. 6500 to Rs. 10000?

Dear All,

Could somebody help me solve the query given below:

If an employee's basic salary increases from Rs. 6500 to Rs. 10000, is it mandatory under the PF Act that they have to be a member of PF?

Thanks,

Pawan Kashyap

Provident Fund, once covered, will continue irrespective of any hike in salary above the ceiling limit prescribed under the Act. Therefore, if the salary of a member becomes Rs 10,000, he is still a covered member. If the employer thinks that contributions should be limited to Rs 6,500, he can do so. On the other hand, if the employer is willing to contribute for such a higher salary, then he can deduct PF for that higher salary and contribute based on it. The only thing to note is that while the employer is making contributions, Pension Fund contribution shall be limited to 8.33% of Rs 6,500 only.

Regards, Madhu.T.K

Dear Sir,

In continuation of the above query/solution, what should be done in a case where the employee wants to contribute based on the increased basic salary (i.e., Rs. 10,000), but the employer prefers the contribution to be made at Rs. 6,500 to reduce costs?

Swati

Dear Pawan,

Yes, it is mandatory for a member of this act to continue the contribution depending on their wish to deduct it from the ceiling or based on the actual increase in basic pay, as Madhu has already described in detail.

Kashi :)

Since he is already a member, he has to continue contributing the same percentage on $6500, or he can contribute more, but the company's contribution is limited to 12% on $6500. In no way should he be excluded when he becomes a member of the PF and exceeds the salary limit prescribed by the PF Act.

In the case of a member drawing more than $6501 per month (basic) at the time of joining, he may be excluded from PF contribution, provided he was not a PF member in his previous employment. In such a scenario, you have to obtain a letter from him stating that he does not want to be a PF member as he is earning more than the prescribed limit.

Dear Swati,

I believe your query is related to VPF. The VPF (Voluntary PF) option is available to all employees. An employee can contribute to the PF Fund through VPF by choosing the amount they wish to contribute.

I trust this addresses your query.

Regards,
Hitesh M.

Dear Pawankumar,

I believe most companies have a CTC (Cost to Company) salary structure that includes both sides (employee and employer) PF contribution. Therefore, I don't think the employer would have any problem contributing at a higher basic as it will not increase any costs for the employer.

With regards,
Nitin.

Can you all please make it clear by showing a calculation of the contribution to PF? I know that the employee can contribute up to 12% of his basic salary, even if his basic salary exceeds the prescribed limit. However, the employer can only contribute 12% of ₹6500/-. If the basic salary is higher, the employer still contributes up to 12% of ₹6500/-. Please correct me if I am wrong.

Dear Mr. Madhu,

Could you please advise on the particular section of the PF Act that mentions continuing the contribution to PF even if the salary exceeds 6500? We have encountered some employees who argue about this, and it would be helpful to have the specific section of the act to reference.

Best Regards,
Shinkar

Dear Mr. Madhu,

Mr. Madhu has given a good reply to you. If the employer wants to discontinue the PF contribution to cut costs, we can ask the employee to resign and then rejoin.

Goodbye,
Srinivas

Hi HR fraternity!

I have a doubt about PF penalties and damages. If one month's contribution has not been paid by the company, what is the rate of penalty and when does it have to be paid? If the contributions have not been paid for 4-5 months due to company loss, what action should be taken by the PFO? Is the due amount paid at once or in installments? If so, when does it have to be paid – in the next month or at the end of the year?

Please help me in this regard.

Thank you,
SRINIVAS

If once an employee is covered under the PF Act, he has to pay the contributions irrespective of increments. However, he has the choice to decide which percentage of the amount to cover under PF.

If he is covered under PF before Rs. 6500/-, he is eligible for PF continuously. However, we can restrict the employer contribution up to 6500/-, i.e. 780/- per month.

Dear Mr. Shinkar,

Para 26-A of the Employees Provident Funds Schemes, 1952 provides for retention of membership.

Dear Mr. Srinivas,

For non-payment of contributions payable by the employer, interest shall be collected by the EPF Organization as per section 7 Q of the EPF & Misc Provisions Act, 1952. I do not know the exact rate of interest, but it should not exceed the lending rate of banks. Similarly, damages are to be paid under section 14 B of the Act.

Besides the above, failure to pay contributions may also lead to prosecution against the employer, and if the employees' share of contributions collected (deducted from the salary) is not paid, then the employer shall be convicted of the criminal offense of misappropriation of funds.

Financial loss shall not be considered a reason for the delay in the payment of contributions. However, if the company has been running in losses for the last five years and has been declared as a sick industrial undertaking for which a scheme of rehabilitation has been sanctioned by the Board for Industrial and Financial Reconstruction, a waiver of damages is possible.

For the payment of arrears of contribution, an installment scheme shall be obtained from the Asst. Provident Funds Commissioner under an undertaking that the arrears shall be paid in installments along with the current contributions. Usually, the EPFO will take a bank guarantee for one month's installment. If any installment or current contribution is not paid, the facility will lapse, and thereafter the revenue recovery proceedings will be initiated for the recovery of the whole amount at once.

Regards,

Madhu.T.K