Can Our Company Legally Reduce Provident Fund Contributions to the Rs 6500 Limit?

Hi,

Can anybody please advise me on the below mentioned issue?

Our company has been depositing the employees' PF amount of 12% of the basic salary, which was above the limit beyond the basic salary of Rs 6500. For example, if somebody's basic salary was Rs 12,000, then 12% on Rs 12,000, both employers' and employees' contributions deposited with the PF authority. This practice has been followed for a very long time.

Now, some lawyers have instructed the management to restrict the contribution of both the employees and employers to be reduced to the basic salary amounting to Rs 6500. Can the management now reduce the contribution? If so, what are the remedies available for both the management and the employees?

Please advise.

Regards,
Alex

Dear,

Once they have contributed $12,000, now legally they cannot be reduced. The advocate has not done his job properly and has given them illegal advice. In between, you cannot reduce the basic for contribution point of view.

Regards,
JS Malik

Dear Mr. Malik,

I am new to site HR, and I have a query to ask you. My employees are planning to contribute a voluntary contribution of 12%, in addition to the statutory contribution of 12%, effective from June 2009. If they plan to stop their voluntary contribution in the future, is it possible?

Regards,
Selva

Hi,

I disagree with the observations of Shri Malik, and Advocate's advice is right in accordance with the law and the verdict of the Hon. Kerala High Court in the case of The North Malabar Gramin Bank Officers Association.

Hiren Chheda
09821078457

Dear Hiren,

You have all the rights to disagree because in law, things change from time to time. If you have a copy of the above-said verdict, please forward the same so we all can update.

Regards,
J. S. Malik

Dear Selva,

You can collect applications from individuals and forward them to the PF authorities. You can choose to stop contributing to VPF at any point, and in such cases, kindly inform the PF authorities accordingly.

Regards,
J.S. Malik

Dear Mr. Malik,

As per my knowledge, once VPF contribution is declared, it has to be continued for that financial period. After completing that period, only then can you submit an application to stop it. Please correct me if I am wrong.

Thank you.

Dear Shri Malik,

I do not have the full verdict, but the relevant paragraphs are as follows:

When the employer had agreed to make contributions in excess of the statutory limits, it did not mean that it was permanent. When the salary was revised or when the ceiling limits had been enhanced or modified, naturally the employer was also entitled to reconsider, revise, or withdraw from its earlier decision. Hence, I do not think that there was any prohibition under the Scheme for the management to withdraw from their earlier decision of making the employer's share of contribution in excess of the statutory limit or limiting the contribution to the statutory limits.

Another argument advanced by the learned counsel for the petitioners was that there was a prohibition under Section 12 of the Employees Provident Fund and Miscellaneous Provisions Act (for short, the EPF Act) from reducing the benefits which the employees were enjoying. Section 12 of the Act reads:

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

Section 12 prohibits the employer from reducing the wages of the employee to avoid his liability to pay contributions to the EPF Scheme. It states that the employer should not reduce, whether directly or indirectly, the benefits of the old age pension, gratuity, provident fund, life insurance, etc., to which the employee was entitled under the terms of his employment, express, or implied. The learned counsel for the petitioners submitted that there was a prohibition under Section 12 of the EPF Act that the employer should not reduce the benefits enjoyed by the employee either directly or indirectly, and by reducing the employer's share of contribution, the benefits which the employees were enjoying would be reduced. Section 12 imposes a prohibition from reducing the wages with an intent to, by reason only of his liability for the payment of contribution to the Scheme. It further states that the employer cannot reduce it directly or indirectly if by the terms of employment, the employee shall be entitled to such benefits. The petitioners had no case that the terms of employment were such that the employer had agreed to contribute to the EPF Scheme in excess of the statutory limits. There was no case for the petitioners that the wage was reduced or that the terms of employment included such a concession that the employer shall make contributions to the Scheme in excess of the statutory limits. In the absence of any such allegation, I do not think that Section 12 can have any application.

Regards,

Hiren Chheda