Understanding PF Requirements: Is It Mandatory for All Employees in Larger Companies?

Dear Seniors,

I want to know if PF is compulsory for all employees in a company with more than 20 employees.

1) For a person with less than ₹6500 basic and DA.
2) For a person with ₹6500+ basic + DA.

If any employee from the above two categories does not wish to enroll in PF, is it optional or mandatory?

Thank you.

Please see below the EPFO coverage rules.

Establishments employing 20 or more persons and engaged in any of the 180 industries/classes of businesses specified.
Co-operative Societies, employing 50 or more persons and working without the aid of power.
Establishments not coverable statutorily can come under the coverage of the Act.
An establishment continues to be covered under the Act, irrespective of the fall in the employment strength.
Since the Act applies on its own force to the establishments, the employers are required to file the particulars in the specified format for registration and allotment of business number.

Dear Ashok,

If any employee in your organization earns a basic salary of less than 6500 PM, then you have to deduct EPF at 12.00% from his salary, and your company has to contribute 13.61% of his salary. However, if the basic salary is more than 6500 PM, it is not compulsory to deduct EPF. But if the employee wishes to deduct, then you have to deduct and also make the contribution on his salary.

Regards,
Mohnish Thacker.

If a new employee, drawing a PF qualifying wage (Basic + DA) of more than Rs. 6500, he need not be covered under the scheme and he is called an exempted employee. But if an employee is enrolled as a PF member when his PF qualifying wage was lesser than or equal to Rs. 6500 and subsequently his salary is increased to more than 6500, then he should continue to be a member.

The act or the PF authority will not object if the management wants to cover all the employees under the scheme irrespective of their salary. The act or the PF authority will not object if the management wants to contribute PF contribution for all the employees up to Rs. 6500, even if they draw more than Rs. 6500.

For the above special cases, we may have to get some declaration/application as applicable.

Sridharan

Dear Ashok,

If any employee in your organization earns a basic salary of less than 6500 PM, then you have to deduct EPF at 12.00% from their salary, and your company has to contribute 13.61% of their salary.

However, if the basic salary is more than 6500 PM, it is not compulsory to deduct EPF. But if the employee wishes to deduct it, then you have to deduct it and also make the contribution based on their salary.

As per the points mentioned above, if the basic salary of an employee exceeds 6500, both the employer and employee are liable for the PF contribution up to the limit of Rs. 6500.

Regards,
Mohnish Thacker

Thanks & Regards,
Rakesh Kashyap

My question is if an employee is existing in the PF account after completing 2-3 months, can we reduce his basic? Is it possible or not?

No, it is not possible. It amounts to punishment, and it is difficult to reduce the basic amount.

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Dear Rakesh,

Take 1 example as below.

Suppose Mr. A is working in a company with a basic salary of Rs. 6000 at the time of joining. So, the company has to deduct PF and contribute the same because his salary is less than 6500. After 1 year, his salary increases to Rs. 8000. In that case, the employer is liable to deduct PF and contribute because he is already in PF at the time of joining. So, it's not possible to stop deducting PF from his salary until and unless he resigns from his job. But there is one option open for them. The employer can deduct PF only on the amount of Rs. 6500 if the employee agrees to that; otherwise, the employer deducts PF on the whole salary, i.e., Rs. 8500.

Now, suppose Mr. A is working in a company with a basic salary of Rs. 8000 at the time of joining. In that case, if the employee agrees to PF deduction, then the company has to deduct PF on 6500 or the whole amount of Rs. 8000; it's up to both parties. If the employee does not want to deduct PF, then it's not compulsory to deduct PF from his salary because his salary is more than 6500.

I hope you can understand from the above example.

Regards,

Mohnish Thacker.

Dear,

If an organization has more than 20 employees, PF coverage is mandatory.

Regards,
J. S. Malk

I have doubts regarding the PF matter. As per my understanding, an employee can now be exempt from PF only if their salary is above ₹10,000. Please confirm.

Dear Arka,

Pon1965 is absolutely right. If any employee is receiving a monthly salary of more than 6500, then they are exempted from PF deduction. However, if they wish to have PF deducted from their salary, they can do so. Therefore, please clear your doubts regarding this matter.

Dear Ashok,

In any establishment where the number of employees is 20 or more, the said establishment comes under the purview of EPF & MP Act 1952, and it is mandatory for the establishment to obtain a code from the local RPFC and remit PF under the said code.

As for salaried employees receiving a basic salary up to 6500, they are considered covered employees, and the employer must remit their PF as per the statute, provided the total number of employees in the establishment is 20 or more. Employees receiving a basic salary above 6500 are excluded employees, and PF contributions are not compulsory for them.

Since PF is a social security scheme in India, almost all employers pay PF to all employees irrespective of their salary level.

Kalyan Mitra

Hello,

Can someone please direct me to the act, section, and/or subsection where it is mentioned that EPF is voluntary if the basic salary is greater than 6500? I require this to show a copy to my HR department as they are not agreeing to my request of not deducting PF. My basic salary is above 6500. Please assist.

Thanks in advance.

Please find below an extract of an article by Sh. HL Kumar, Sr. Advocate and Editor, Labour Law Reporter. The entire issue of PF is well illustrated in the link:

COVERAGE OF A NEW EMPLOYEE UNDER EMPLOYEES' PROVIDENT FUND SCHEME

If the wage/salary of a new employee is above Rs. 6500 per month and he has not been a member of the Employees' Provident Fund or, being a member, has settled his account, then he is not to be enrolled as a member of the Scheme. However, if the employer and the employee both agree, there is no bar in enrolling such an employee as a member under the Employees' Provident Funds Scheme, 1952. Para 34 of the Employees' Provident Fund Scheme provides for a declaration by a person before taking up employment to state in writing whether or not he is a member of the Fund and, if so, the relevant details thereof are to be given.

As such, for every new appointee, an employer must obtain the declaration in Form-2 prescribed for this purpose. Upon enrolment, it needs to be submitted as prescribed under Para 33 of the Employees' Provident Funds & Miscellaneous Provision Scheme read along with Para 18 of the Employees' Pension Scheme. This Form also requires indicating the nominee and family details. Besides that, it is also advisable to get a declaration in the format as given hereinafter containing a declaration by the newly appointed employee since a coverable employee is to be enrolled as a member of the Provident Fund Scheme from the very first day of his joining, and this provision has also been upheld by the Bombay High Court.1

COVERAGE OF AN EMPLOYEE WHOSE SALARY CROSSES RS. 6500 PER MONTH

If the wage/salary of an employee working in a covered establishment and covered under the Act exceeds Rs. 6500 per month, then he will be entitled to remain covered up to Rs. 6500 per month. For instance, an employee who is a member and whose salary was Rs. 6400 per month will continue to be a member to the extent of Rs. 6500 per month even when his salary is increased to Rs. 7000 per month. If the employer and employee both agree, there is no bar in enrolling such or any other employee as a member under the Employees' Provident Fund Scheme, 1952.

COVERAGE OF A RETIRED EMPLOYEE UNDER THE SCHEME

There are two types of retired employees as far as the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 is concerned:

1. Those who retire from the establishments, including public sector undertakings, which are covered under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, and they were also members of the Fund.
2. Those who retire after working in an establishment which was not covered under the aforesaid Act and the Scheme, including in the Government service where the Employees' Provident Funds Act did not apply.

In the former case, the retired employee from a covered establishment and having settled his Provident Funds account from the Provident Fund Department or the Provident Fund Trust (even on attaining the age of 55 years) will not be legally eligible or liable for Provident Fund membership on his employment or re-employment in a covered establishment, albeit when his wage/salary is less than Rs. 6500 per month. If either of the two conditions are not fulfilled, the employee will be eligible and liable to be covered from the first day of joining at least on Rs. 6500 per month even when he is drawing more salary.

The term "excluded employees" is a product of the Employees' Provident Fund Scheme, 1952 as defined in clause (f) of para 2 as under:

"An employee whose pay at the time he is otherwise entitled to become a member of the Fund, exceeds six thousand and five hundred rupees per month.

Explanation: 'Pay' includes basic wages with dearness allowance, retaining allowance (if any), and cash value of food concessions admissible thereon."

"An excluded employee employed in or in connection with the work of a factory or other establishment to which this Scheme applies shall, on ceasing to be such an employee, be entitled and required to become a member of the fund from the date he ceased to be such employee." [para 26(3) of EPF Scheme]

Persons who are retiring and settling their claim with the Provident Funds authorities after attaining the age of 55 years will be 'excluded employees'. In this context, the word 'Fund' is important. It signifies that only those persons who have settled their claim with the Provident Fund established by the Employees' Provident Fund Act/Scheme or any other Fund covered under the Act/Scheme will qualify for being termed as 'excluded employee'. To be more specific, it is pertinent to note that anybody retiring from an establishment of the Government or an establishment not covered by the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 will not qualify for exclusion from membership in a covered establishment under any circumstances whatsoever.

In this regard, reference could be made to a judgment of the Bombay High Court, where the Asstt. Provident Fund Commissioner for Maharashtra and Goa called upon the petitioner to remit the provident fund dues in respect of 11 employees who had already retired. Such employees were, in fact, retired from service on attaining the age of 55 years. The amounts due towards their provident fund were also received by them. However, after retirement, these persons were allowed to work as per their convenience subject to their health conditions. The petitioner Company challenged the demand raised by the provident fund authorities in a writ petition and referred to para 2(f) of the Employees' Provident Funds Scheme defining 'excluded employee' read with clause (a) of paragraph 69 of the Employees' Provident Funds Scheme (supra). The High Court quashed the demand as raised by the Provident Fund authorities.2

RETIRED EMPLOYEE IF COVERED ARE NOT ELIGIBLE FOR EMPLOYEES' PENSION SCHEME

In view of provisions contained in para 6A of the Employees' Pension Scheme, 1995, restricting membership of the Pension Scheme till attaining the age of 58 years or the fact that any pensioner availing pensionary benefit under the Employees' Pension Scheme, 1995, will not be required to be enrolled to the membership of the pension fund (EPS, 1995) (though they will be enrolled to the membership of the Employees' Provident Fund Scheme, 1952 as there is no age bar for the same), there will be no requirement to divert their share of pension contribution to the pension fund. Resultantly, their entire EPF contribution will remain credited in their provident fund account only.

Penalties for Non-Registration Under the PF Act

What are the penalties for having more than 20 employees but not being registered under the PF Act?

Dear Concern,

Kindly address the following concerns regarding PF:

1) If there are a total of 20 employees, all earning a salary higher than 6500, is it mandatory to enroll in PF?

2) What is the maximum team size that can be excluded from the PF bracket?

3) I came across information on a site stating that if all employees and employers agree not to participate in PF, it can be exempted. Could you provide more details on this process?

I am also interested in understanding ESI, with similar considerations as for PF.

Thank you.