Can We Legally Reduce PF Deductions by Adjusting Basic Salary in Employee Packages?

Hi All,

We are thinking of giving employees a desirable salary package. For example, reduce the basic and add the same to other allowances. This will reduce the PF that he/she has to pay, and the net take-home will be more without affecting the monthly gross salary.

As PF deduction is 12% of the basic, can we deduct PF on the minimum basic, i.e., 6500/-, regardless of whatever basic an employee is given in the salary structure?

This means if my Basic salary is Rs. 11000/-, can the PF contribution of 12% from both employer and employee be calculated only on the minimum basic for PF, which is 6500/-?

Awaiting your reply on this...

Thanks

Dear Payal,

You cannot reduce the basic now. However, for new employees, you pay PF on 6500 max. But once you have paid on 10000, then you cannot reduce the same. For new joinings, you can do.

Basic should be in ratio, and you should follow some salary structure, which should seem to be reasonable.

Thanks,
J.S. Malik

Hello Mr. Malik,

Thanks for your reply! Whenever there is a case like salary revision, the PF deduction is done on the new basic amount, whatever it is. If we are considering changing the salary structure (as discussed above) and implementing it with the appraisal in Oct '09, then the PF deduction will be based on that new basic salary. I hope I have made my question clear to you.

I look forward to your reply on this.

Thanks