Confused About Voluntary EPF Contributions for Directors? Seeking Advice from HR Experts

Hi Everyone!

I saw a couple of posts on this topic but I am still confused. In my organization (manufacturing industry) of about 100 odd employees (workers as well as staff, managers, etc.), we have opted for a ceiling of deduction, i.e., contribution is limited to a basic of 6,500/-. Recently, we have appointed two directors whose basic salary is more than 6,500/-, and the company wishes to contribute more than 12% of 6,500/- only for the two directors, leaving the rest of the employees in the ceiling limit.

On the PF website, there is mention of voluntary contribution and also in the Act; however, I have received contradictory advice from the concerned officers. When I call the PRO, he says "appoint me as your consultant" and gives vague replies. I am confused 😕. Can the seniors help me with concrete advice?

Thanks in advance.

Kalpana Iyer

Hi Kalpana,

The VPF is the employee's contribution, and they can contribute more than 12% up to 15%. There is no provision stating that management will have to match or pay above 12%.

Even if the employee contributes more than 12%, the company will only pay 12%. I hope this clarifies any ambiguity.

Regards,
Suraj Varma

Employers have to pay the statutory limit of 12%. If the management can afford to contribute more than 12%, they can. There is no upper ceiling.

Thanks, but there is a contradiction in both replies. Suraj says the company (employer) will pay only 12%, but Arun says Management (employer) can pay more than 12%!

Any seniors can clarify, please?

To my inference, the employer can contribute up to a maximum of 12%. It's on the employee's side; he can contribute 12% or opt for more than 12%, up to 15%. That is the VPF (Voluntary Provident Fund).

Hope this is in order.

- kb

Hi Kalpana,

You are missing the point made in the statement by Arun. What he says is that, and I quote: "Management (employer) can pay more than 12%".

The word to focus here is "can", which means if the employer so wishes, it can choose to contribute more than the statutory requirement of a minimum of 12% of Basic.

But your initial query was:
The problem is with the flaw in your question: the company wishes to contribute more than 12% of 6,500/-

What you probably meant was: the company wishes to contribute 12% of their actual Basic (which is more than 6500/-).

If my interpretation is correct, then the answer is:

1. You can go ahead with the company decision, and the employer contribution can remain 12% of their Basic.

2. It does not affect any of the existing employees (i.e., other than the 2 Directors) as their Basic is anyway less than 6500/-

A point to remember, however, is that should any other employees' Basic go above 6500/- in the future, that employee's contribution too should be 12% of that increased Basic.

Regards,

Neeraj K. Singh

Dear Kalpana,

In my organization, many employees have deductions made for VPF. The company pays 12% as the employer's share of ₹6500, whereas the employee pays 12% as PF and another 12% as VPF of ₹6500. However, legally, if an individual wants, they can pay 12% of the full basic as PF and 12% as VPF.

Regards,
J.S. Malik

Dear Kalpana,

There are two things in your query: 1. Ceiling limit 6500.00 and 2. VPF.

Your company wishes to contribute above the ceiling limit for your Directors. Here, I would like to mention one thing that whatever the Basic Wages employer and employee both have to contribute equally, i.e., 12%, whether it is 6500.00 or less or more than 6500.00.

Moreover, if an employee wishes to contribute voluntarily more than the prescribed percentage (12%), he can contribute up to the maximum limit of 27% of his/her basic (as prescribed under the Income Tax Act), but the employer is not bound to contribute at such a higher percentage; rather, the employer can fix 12% of his/her basic.

Principally, the ceiling limit is prescribed for the employer, not for the employee, i.e., an employer has to give coverage to an employee up to Rs. 6500.00 as Basic Wages, and membership will continue even after an increase in the basic wages. On an increase, the employer can fix the contribution at 6500.00 or can contribute more than 6500.00. In both cases, the percentage of contribution will be equal, i.e., 12%.

On the other hand, VPF is the wish of an employee to contribute more than the statutory percentage; there is nothing like wage ceiling 6500.00 or more.

Example:

If A's basic salary is 10000.00 and the employer wishes to contribute on 6500.00, then A has to contribute on 6500.00. In this case, if A wishes for VPF (say 5% more than the statutory percentage), then he/she can do so, but the calculation of A's contribution (12%+5%) will be on 6500.00, not on 10000.00.

Therefore, it should be clear in your mind that Basic wages cannot be different for the employer and employee for calculating the contribution; rather, it should be the same, whether Rs. 6500.00 or Rs. 10000.00.

Actually, VPF is the share of contribution of an employee over and above the prescribed percentage, but Basic Wages on which the contribution has to be calculated shall be the same for employer/employee/VPF contribution.

VPF contribution cannot be more than 15%, since as per the Income Tax Act, both the statutory and VPF contributions should not be more than 27%, i.e., (12%+15%) = 27%.

Please let me know if you need any further clarification.

Thank you.

I think I have understood the concept, and the last post by mak007hr sounds logical and right. And no, ravikmk, no more confusion. Thanks everyone for sparing some time for me.

Regards,
Kalpana Iyer

Employees can voluntarily deduct up to 15%, but the employer is not bound to pay the same. The employer is obligated to pay up to 12%, not more than this.

Dear,

It depends upon the employer. In this case, the employee gives a declaration to the employer that he wants to deduct more than 12% of his basic as a PF contribution.

Regards,
Devendra

In response to the valued reply by mak007hr regarding VPF rate, I would like to state that the following statement is found on the EPF website (EPFO):

"As per the Act, the member has to contribute at the rate of 10% or 12% of his basic pay, D.A., and retaining allowance if any. In case the member wants to contribute more than this, voluntarily he can do so at any rate he desires, i.e., up to 100% of basic and D.A. However, the employer is not bound to contribute at the enhanced rate."

Please note the correct information provided above.

Dear Mr. Subratasingha,

The share of PF contribution of an employee, including his/her VPF, should not exceed 27% of his wages on which the contribution has been calculated. Income tax rules stipulate a maximum of 27% contribution of Basic Wages, which may be in the form of EPF/VPF/Superannuation Fund, etc. The purpose of this limit is to curb the tax benefit extended on such contributions.

Mohd. Arif Khan
Dy. Manager - HR
9891578605
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Dear Mohd,

We recently implemented Employee VPF in our organization after consultation with an audit firm. It was confirmed that to enroll in this scheme, there has to be a minimum of 20 members opting for this scheme, and the contribution can be up to 100% of basic inclusive of the mandatory contribution. VPF is part of the ₹1,00,000 investments under Section 80C of the Income Tax Rules. I agree with the point that the VPF employer contribution above 12% is at the discretion of the organization.

Please provide the latest PF contribution percentages for both the employee and employer, along with the distribution details. Also, kindly send an email to [Login to view].