Is It Legal for Employers to Skip PF Contributions for Employees Earning Above 6500?

Hi All,

I request you to share your thoughts on the following topic:

Normally with employees 20 and above, PF is mandatory. But, if the employer says "I don't want to run this all PF show, I fix up the CTC without PF, whoever will be interested, then only I will take," then what will happen? Suppose some X's basic is 7000. Up to 6500 basic, PF employer's share is compulsory. For above 6500 basic, it is optional for the employer. This means for X, he can pay 12% * 6500, and he need not pay on the total 7000. Please confirm if this is correct or not.

Thanks,
VS

Dear VS,

The first thing I would like to clarify at the very onset is that there is a lot of dispute regarding the issue. As of now, any employee who is not a member of any PF (new applicant) can opt to stay out of PF if their basic salary is over 6500/-, provided they give a declaration in writing.

For example, if this is your first job and your basic salary is over 6500/-, you can opt out of PF by making a written declaration.

As for the following query:
"Suppose someone's basic is 7000. Up to 6500 basic, PF employer's share is compulsory. For basic above 6500, it is optional for the employer. This means for the individual mentioned, they can contribute at 12% of 6500 and do not need to pay on the total 7000. Please confirm if this is correct or not."

It is not correct; you cannot break the Basic and contribute like that once it is under PF.

Regards,
SC

Hi,

I would appreciate further clarification on PF. Suppose in a scenario where a person is drawing above Rs 6500 per month basic and in an earlier employment had PF deductions. Can this person in new employment decide to opt out of the PF scheme? He could always close his PF account.

Regards,
Revati

Dear Revati,

No, I don't think so, once covered always covered. But kindly confirm with PF authorities.

One more thing, I wish to ask everyone, why do you want to opt out of PF and even if the Employer wants, please don't support this move. This Social Security Fund is a very good post-retirement benefit scheme, and there are very few or almost no options available in the current market which can match PF in terms of Assured Returns, Security, and Tax benefits. Don't opt out; it would be naive to do so.

Regards,
SC

Hi,

As per the Employees' Provident Fund Rules 1952, in a factory where 20 or more employees are ordinarily employed during the year, the factory needs to be covered under the PF Act. Since PF is a social security measure, it is mandatory for the organization to cover all employees under the Act. Even if the number of employees exceeds the ceiling, they can still be covered, considering the welfare and security of an employee.

Regarding PF exemption, the benefit provided by the management should satisfy the PF authorities, and the employer must prove that it is far superior to the Provident Fund. Otherwise, it is obligatory for every employer to cover all employees from the day they join.

Devarajan

At no stretch of imagination can you exclude your establishment from the operation of the EPF Act if you employ 20 or more employees. It is an Act enacted by Parliament, and no authority can dilute it.

Secondly, the monetary ceiling as indicated by you is for the purpose of recovery towards the Pension Fund under EPS-1995. The PF recovery will be at 12% or 10%, as the case may be, based on the PF bearing emoluments.

Dear All,

The PF Scheme offers three benefits:
1. Equal contribution towards PF which you can withdraw later.
2. Employees Pension Scheme which provides you with a pension.
3. Insurance in case of death during employment.

If these three benefits are matched by the employer, then it is worthwhile to recommend and accept the proposal by the company as an HR professional.

Regards,
Govind
98338 90250

Hi,

Provident Fund (PF) is mandatory for employees falling under the workman category, who earn a salary of less than or equal to ₹6500. For employees whose initial salary was higher than ₹6500, coverage is not compulsory. However, if the employee and employer agree, it can be implemented. Those employees who previously earned less than ₹6500 but now earn more than that amount, must be included under this act.

Thank you.

Hi,

In very simple language, if your company has 20 employees, but out of those, 5 employees earn a basic salary of more than 6500, then Provident Fund is not applicable to your company.

For more clarification, please email me at chandrakantv@humanempower.com.

Regards,
Chandrakant V.
9820592842
(Provident Fund, ESIC, Contract Labour, MLWF, PT Consultant)

I was under the impression that if the number of employees crosses 20, then the organization has to register for PF. Out of these 20, if 10 employees earn more than 6500 per month, then the government PF will apply for the remaining 10 employees.

Please let me know if this is correct.

Thank you,
Sujoy Das

Hi, I am having only 5 employees. Can I deduct PF? I want to deduct PF.

In very simple language, if your company has 20 employees but out of which 5 employees earn a basic salary more than 6500, then Provident Fund is not applicable to your company.

For more clarification, email me at [Login to view].

Regards,
Chandrakant V.
9820592842
(Provident Fund, ESIC, Contract Labour, MLWF, PT Consultant)

If any company has crossed the minimum limit of employees applicable for PF registration, then you cannot avoid the same just because you are not interested to participate in this scheme. Since you have crossed the limit of 19 employees, from that day, you are liable to pay PF dues. Just do one thing: submit an application for registration along with the consent letter from all employees stating that they are not interested to participate in the scheme. However, you are still liable to pay PF minimum admin charges of Rs. 2 even if your single employee is not interested in the PF scheme.

Regards, Yogesh