Should We Include New Quality Managers in EPF Despite Higher Salaries? Seeking Advice

Dear Listers,

Our company has recently appointed two quality managers whose consolidated pay is Rs. 12,500.00. Our HR department guidelines state that since, at the time of appointment, their salary is fixed at more than Rs. 6500.00, they do not fall within the EPF contribution limit. Therefore, the company does not need to pay the PF share for them.

These two managers are also not particular about PF deduction. However, I wanted to know if we can treat them as exceptions or if we should include them in the PF list and pay the employer's share of 12% on Rs. 6500.00.

Please advise.

Regards,
Mohamed.

If the company is paying 12,500 as basic, then the company's liability to contribute to P.F. comes only up to the basic + DA limit of 6,500 only. The maximum P.F. contribution is 780 per month.

Dear [Name],

If the basic salary plus DA is more than 6500 per month, then it is the employer's choice to deduct or not to deduct PF. The employer can deduct on the full basic or limit it to 6500. However, once you have become a member of PF, you will continue to be a member of PF.

Regards,
J. S. Malik

Dear Mohammad,

You have whatever strength of employees, whereas if Basic+DA is more than 6500/month, then EPF is not applicable for them. Please read the statement below clearly:

1) An organization employing 20 or more persons makes PF applicable for eligible candidates.
2) If the salary of all employees is more than 6500/Basic+DA, then PF is not applicable. Therefore, no PF is to be deducted from their salary.

Best Regards,

Sajid Ansari - Delhi

Dear Mohammad,

To add Mr. Malik's views, even if an employee's Basic + DA salary is more than Rs. 6500, PF is applicable if he already has the PF account with a previous organization, provided he shouldn't withdraw the PF. Otherwise, you can take Form-11 from the employee to avoid PF. Please find enclosed Form-11.

Regards,
Keshav Reddy.

Hi,

You can deduct their EPF at the rate of 6500 as per EPF regulations and add the balance amount to the FPF account of the employee. Suppose the basic salary of the employee is 12000. In this case, you deduct EPF by default 542, and the balance goes to the FPF account, totaling 898 in the pension account. The total amount of deduction is 1440.

Mallik Sir,

I am a fresher in the HR field. I wanted to know how PF is calculated and what are the constraints of the same. As you mentioned, it looks like it is not necessary that every employer will contribute to PF. Can we as employees decide not to invest in PF?

Obtaining Form 11 from the employees whose basic and DA is more than Rs. 6500 and who are not contributing to PF (non-PF members) is mandatory.

Dear Vanisreenath,

Form-11 is mandatory for employees who are drawing more than Rs. 6500 (Basic+DA).

Regards,
Keshav Reddy.

Dear All,

As per our above discussion, I am confused because I think PF deduction is a must if the employer has a minimum of 20 employees. What is the role of more than 6500/- (Basic+DA)?

I think there is no limit on deduction for PF; this norm (max 6500/-(Basic+DA)) is only for the Pension scheme. If the company is registered with EPFO, then it does not have the right to decide whether to deduct PF or not. It has to deduct 12% of (Basic+DA).

Please discuss the above queries and clear my doubts.

Regards,
Sandeep

"Every day starts with some expectation. But, ends with some experience."

Hi, I am Baisali, working as a Sr. IT Recruiter, but now I am trying for a generalist profile. Please help me out. I don't mind working as a fresher in a generalist profile also.

Dear Sandeep,

I appreciate your views on pension scheme norms. However, if an employee does not have any EPF account previously and if their salary is more than Rs. 6500, then it is up to the employee whether they wish to open a PF account or not. The employer cannot insist on the employee opening a PF account, but it cannot be the other way around.

In case the employee chooses not to opt for PF, we have to obtain Form-11 from the employee.

Regards,
Keshav Reddy.

Dear Sajid Ansari,

I think now PF is applicable for an organization if it has a minimum of 10 employees instead of 20. Am I wrong? Please advise.

Subrata

Hi All,

Let me clarify the Law Position. If an employee's basic is more than Rs. 6,500/- per month and he has no previous subsisting membership, then he is an excluded employee as defined under para 2(f) of the EPF Act, 1952. In this eventuality, the employer has discretion to grant PF membership.

If an employee has previous subsisting membership and the present basic is more than Rs. 6,500/- per month, then he shall have to be enrolled as a PF subscriber subject to the restriction of the employer's contribution to Rs. 780/- per month. There is no such restriction on the member to contribute at a higher rate of the entire basic + DA aggregating more than Rs. 6,500/- per month.

Hi All,

Let me clarify the Law Position.

If an employee's basic is more than Rs. 6500/- per month and he has no previous subsisting membership, then he is an excluded employee as defined under para 2(f) of the EPF Act, 1952. In this eventuality, the employer has discretion to grant PF membership.

If an employee has previous subsisting membership and the present basic is more than Rs. 6500/- per month, then he shall have to be enrolled as a PF subscriber subject to the restriction of the employer's contribution to Rs. 780/- per month. There is no such restriction on the member to contribute at a higher rate of the entire basic + DA aggregating more than Rs. 6500/- per month.

WHO IS ELIGIBLE TO BECOME A PF MEMBER?

• All employees employed in an establishment (includes employees employed through contractors, daily rated, piece-rated, temporary, casual, etc.).

• "Excluded employees" need not be enrolled as PF members.

• Excluded employees are:

a) Apprentice

b) Employees drawing the wages (Basic + DA only) beyond Rs. 6500/- as on the date of joining the Establishment. (If the wages of an employee increase beyond Rs. 6500 during employment and after becoming a member of the Employees' Provident Fund, such employees are not to be treated as excluded employees. In such cases, their contribution shall be restricted to wages up to Rs. 6500/-.)

c) Employees whose Employees' Provident Fund Accounts were once fully settled after attaining 55 years of age or on permanent settlement abroad.

• Employees drawing wages beyond Rs. 6500/- can also become a member of the Fund if the employer and employee give a joint declaration to the Regional Provident Fund Commissioner.

• An employee, at the time of joining an establishment, should declare his previous Provident Fund Account Number/membership details to his present employer for communication to the Commissioner.

• All employees should be enrolled as Provident Fund members from the date of joining the establishment/factory.

The rate of contributions payable under the three schemes (with effect from 22-9-97) are as follows:

Contribution is determined with reference to the percentage of wages (Basic + DA) of each member.

Name of the Scheme Employees' share Employers' share

Employee's Provident Funds Scheme, 1952 12% * 3.67% (amount in excess of 8.33%) (i.e. 12% - 8.33%)

Employees' Pension Scheme, 1995 NIL 8.33% (No separate recovery. Diverted from and out of Provident Fund Contributions only)

Employees' Deposit Linked Insurance Scheme, 1976 NIL 0.5%

*10% in case of certain establishments (Jute, Beedi, Bricks, Coir industry, Guar gum industries, etc.) and also to any establishment which employs less than 20 persons.

Example: Method of calculating Provident Fund Contribution from the Monthly salary.

Employees' Salary = Basic DA HRA City Conveyance Total wages allowance etc.
4000 2000 500 100 200 6900

Attracts PF Deduction PF not to be deducted.
i.e.: Rs.6000/- @ 12% = Rs.720/-
Matching share payable by Rs.720/- Out of this, 8.33% Employer of 'wages' is diverted to Pension Fund (i.e.) Rs.500/- Balance Rs.220/- will go to Employer's share of Provident Fund.

The employer is also required to pay "Administrative Charges' to the Employees' Provident Fund Organisation for maintenance of Provident Fund account etc. i.e. @1.10% of wages of each employee under EPF and @ 0.01% under EDLI scheme. Thus, in this case, the EPF dues payable by member and employer are as under:-

Wages (Basic+DA) Rs. Contribution Admn. Charges Provident Fund Rs. Pension Fund Rs. Insurance Fund Rs. PF Rs. EDLI Rs.
Employee's 6000 720 --- --- --- ---
Employer's --- 220 (720-500) 500 30 66 2 (Minimum)
Total 940 (EPF Scheme, 1952) 500 (Pension Scheme, 1995) 30 (EDLI Scheme, 76) 66 2

In the Annual Provident Fund Statement, the EPF Contribution alone is shown i.e. @ Rs.720/- p.m. as Employee's share and Rs.220/- as Employer's share, calculated for 12 months (subject to wages remaining same for the whole year), as current year contribution. 'Year' means, commencing from the wage month March to February of the following year. No Provident Fund contribution will be deducted on the following:-

Over Time Allowance/Bonus/Commission/Lay Off Compensation/ Medical Allowance/Conveyance Allowance/House Rent Allowance/ City Compensatory Allowance/Cash Allowance/Honorarium/ Washing /Shoe Allowance

Hi,

If Basic + DA is more than 6500/-, then the recovery of PF is purely at the option of the employee. Here, the employee can opt for a total waiver of PF contribution, opt for the recovery of minimum PF (780/-) only, or opt for the recovery of PF on the total Basic + DA. However, there needs to be a clear declaration from the concerned employee.

There is a slight correction to the view expressed by Mr. Sreedhar. For the 'excluded employees', i.e., those drawing more than Rs 6500/-, to become a member of the EPF, it is not sufficient if he only gives consent. The employer also should give consent. That is why a 'joint declaration' of the employer and employee is required. This is because the employer has to contribute to the 'Administrative charges' and comply with the provisions of the Scheme (Para 26(6) of the EPF Scheme refers).