Is It Fair for My Employer to Deduct Their PF Contribution from My Salary?

Hi all,

I recently joined a big media house, and they want me to pay both the contributions of the PF. They told me that since they have hired me on CTC, they will deduct their share from my salary. Is it fair? Also, they deduct a certain amount from my salary and pay it at the time of Diwali as a bonus. Is it okay? Please guide me regarding the same.

Thanks and regards,
Dev

Hi Devnik,

I don't know if it's the correct practice, but my organization (which I joined recently) is following the same trend.

Dear Dev,

What I understand from your query is that the amount of PF & Bonus is shown in your offer letter. Now, while giving offer letters, few companies show all costs they are incurring on you in the name CTC (cost to company). So, they are going to deposit PF, which is a cost they are incurring on you, and that's why it is shown in CTC. I don't understand that employer contribution is deducted from your salary. It is paid to the PF department by the company as their contribution, but it is also a cost incurred on the employee, and that's why it is shown in CTC. The same goes for Bonus; it is a cost shown in CTC. Companies are not deducting but telling employees that this figure would be the cost per month and finally will be paid in a fixed amount.

Above is what I have understood from your statement. If I am wrong and the company is asking you to pay PF from monthly components in CTC, then it is a very sorry state for such companies.

Regards,
SNB

Is it clearly defined in the appointment letter and agreed upon by you? If the answer is yes, there is no dispute. The current trend is to include everything under Cost to Company (CTC), and most companies are adopting this practice just to inflate the CTC.

Dear All,

What currently the companies are doing is not important, and that cannot be the rule of the land. What the statute says is important. As per statute, the company must contribute 12% of your basic+ DA as the company's contribution, and the employee has to contribute the same amount, or if the employee wishes, can contribute more than 12%. The employee's contribution is always deducted from his salary, but the company's contribution cannot be deducted from your salary, which is a violation of the Act. However, if your basic wages are more than 6500, then you are an excluded employee, and you are not covered by the Act.

As for bonus, I have never heard of such a ridiculous practice.

Dear all,

The organization in which I am working is doing the same, and they claim that they have already mentioned in the CTC the amount they are going to deduct...

Mr. Kalyan,

Then you are ignorant of what is happening in big organizations and their HR policies. Do you know they are including the Gratuity amount in the CTC?

Hi Dev,

I think whatever your company is following is the common practice. Companies calculate the cost per head they are incurring, whether it might be your PF, ESI, bonus, or Gratuity (for some companies). They are only concerned and interested in your CTC. Kindly understand that your CTC figure includes your basic salary, H.R.A, T.A, and any other allowances paid to you as per the company norms, PF contribution (of yours and your company), ESI/Medical allowance, and any other benefits given.

So, if your company is deducting P.F from your CTC, then it's the right practice. If it is being deducted from your Basic salary, then you have every right to approach your HR and clarify any doubts.

There are a good number of articles posted on this site that can help you understand what exactly the CTC is.

Dear CITE HR friends,

I read some comments on the topic, and it is shocking to see that we started giving our opinions "What we Feel" but not what the law says. It is not important in the corporate world or to a Professional HR, "what we feel," but we need to abide by the Law.

CTC means Cost to The Company, which includes all salary components paid every month (Basic, DA, Med Allowance, Lunch Allowance, Edu Allow, Attire Allow, Special Pay, etc.) and monthly expenditures (monetary) incurred by hiring an employee (All Statutory payments).

If one's salary is fixed on the basis of "gross," then PF, ESI, or Gratuity contributions will not be deducted by the employer from the employee's monthly salary.

If one's salary is fixed on the basis of "CTC," then PF, ESI, or Gratuity contributions will be deducted by the employer from the employee's monthly salary. It is absolutely right.

We need to check before commenting "Fair/unfair" what was discussed in the interview and mentioned in the offer letter/appointment letter - "Gross or CTC."

Gratuity is also part of CTC, but not the Bonus. Bonus calculation appears only after knowing the "Allocable surplus/Profit" of the company in a financial year.

If you keep Gratuity away from CTC, then when you pay Gratuity in a particular year - in the annual balance sheet of the company, where can you show that "Gratuity amount"? Is it not an expenditure to the company?

Apart from that, the employer cannot deduct a bonus from employees' salary because it is an offense. If such practice is happening in your company, educate the employer. We are hired and paid in HR to ensure labor law is executed and to tell what is right as per labor law to the management.

Bonus is not part of CTC, and on the bonus component, no statutory deductions can happen other than Income tax.

If a bonus is considered as "part of CTC," it attracts PF and maybe ESI. It is illegal.

Sincere request to all CITEHR friends, if we are not clear on the subject, let us study the subject and let us take this CITEHR as a platform to learn, but not to misguide anyone just to see our name appearing in CITEHR. Please.

Regards,

Dr. Sandeep K.

Hello, please clarify.

Are they deducting contributions from your end as well as their end? If so, then it's wrong.

Are they only deducting your contribution? If that's the case, then it's fine.

The Diwali bonus part makes no sense. A bonus is something additional, not a part of the CTC.

Mr. Sandeep,

The explanation given by you is correct. Many companies are allocating the employer's contribution of PF, Gratuity, and PLI, if applicable, in the CTC structure, and the same is remitted to PF. We cannot call it a deduction, but it is an apportioned component.

Hi,

I sense that you may be confused with the CTC and the explanation provided by HR. Nowadays, companies are adhering to the CTC concept, which also includes bonus payments in the salary structure (CTC). I suggest negotiating adjustments in terms of the net salary.

Thank you.

Dear Devink,

I believe there has been a miscommunication between you and the company. The company is correct in its approach. Nowadays, CTC (Cost to Company) is a new trend, and most companies are adopting it. During the interview or when joining, you should have inquired about the components of the CTC or the net salary.

Thank you,
Rajesh Sharma

If a bonus is also a part of CTC, and if an employee's salary "Gross is less than 10000," will you deduct ESI? If yes, statutory noncompliance is 200% sure.

Dr. Sandeep K
Zonal HR Manager (South)

Agree with PON 1965's comment. The current trend is to include everything under CTC (Cost to Company). Some companies add leave and mediclaim premium also in CTC.

Corrected Text:

"Yh, Mr. Gsrsumana is right. CTC means the total investment a company invests in its employees, whether it's directly or indirectly. Most companies are practicing this these days."

Hi all,

Thank you very much for all your inputs regarding the PF deduction as it is mentioned in my offer letter. However, the deduction regarding the bonus is also mentioned in the offer letter. Is it statutory? Is it possible for me to ask the company to not deduct the PF?

Thanks and regards,
Dev

Dear .............

Your query about PF and bonus:

At first, confirm when you joined the establishment, were you offered a CTC or net pay? If they offered you net pay, then it may be illegal to cut the price. If they offered you a CTC, it means it is not illegal. First, confirm what CTC is: it means the cost to the company, including all expenses borne by the company.

For the query about PF:

They will deduct 25.61% of the basic for PF contribution. How so? The Gross wage + PF + bonus + gratuity + leave with pay + etc. = CTC. In that term, they cover 13.61%, and the other 12% will appear on your payslip as a PF contribution.

For Bonus:

Every month, they pay a minimum bonus of 8.33%. At the end of the year, they will pay the full basic as a minimum bonus. Both PF and bonus are shown in your CTC.

If you have any queries after this, feel welcome to ask.

Appa Rao Officer - HR JSW Steel Ltd.

It is not quite proper to ask the employee to also pay up the Employer's share of PF Contributions. Normally, while calculating the CTC, Employer's Share is included in the CTC, so is Bonus. After all, both these heads of account are a cost to the Company.

But if some deductions are being made under the guise of Bonus and it also gets reflected in the Pay Slip, then it is illegal deductions. But if Bonus has been included in the CTC and treated as Bonus and paid as Bonus during Diwali, it is okay. In this case, the deductions towards Bonus cannot be made from the salary each month.

Best Wishes, Vasant Nair

Dear pon 1965,

I expect people to use language with respect to others while addressing anybody on this forum. I work with very big MNCs for more than a decade and I am aware of what is happening currently while offering CTC to a candidate in the queue for a job.

What I have said is that a company's contribution to PF for an employee cannot be deducted from his monthly salary, which is a violation of the PF Act. What is deducted from the salary is the employee's own contribution. A company includes in CTC all costs incurred by them towards an employee, which includes PF contribution, contribution for gratuity, and for pension also if there is a separate pension fund. Companies enjoy Income Tax benefits for these contributions, and these are definitely part of CTC but not part of the monthly salary.

Yea, I don't think your company has done anything wrong in including the employer's share of PF as part of your CTC. This is a universal practice. See, CTC is not limited to your gross salary but reflects your proportional cost to the company. That way, CTC includes welfare expenses too, like the canteen whether you are availing it or not, the cost of a uniform, etc. Indeed, CTC is a misleading figure; "What it reveals is suggestive, while what it conceals is vital." Similarly, conceptually, a bonus is deferred wages. Hence, keeping a provision for the bonus amount every month, although payment is made annually, is not improper. I do not find fault in both practices.

Regards,

KK