Understanding PF Benefits: Can Employers or Employees Opt Out of Provident Fund?

Can the employer decide not to give PF benefits? Can an employee refuse PF benefits?

Please clarify.

Hi,

The organization, whose employee strength is 20 or more and the basic+DA salary is 6500 or less, the PF Act applies. Employers and employees don't have any option to opt in or out of PF; it will be compulsory for both.

Regards,
Harshad

What if the employee strength is more than 20 and the salary + DA is more than 6500 per month.

Regards,
Khushi

During the joining of an organization, an employee's basic salary is Rs. 6,500 per month. Then it is management's decision to give PF or not, but this is at the time of joining only. An employer cannot say no to giving PF to an employee who has received an increment above Rs. 6,500 in basic salary during the continuation of service.

Please correct me if I am wrong.

Regards,
Jai

Hi,

First, it is a statutory compliance to deduct PF if the employee of an organisation whose strength is 20 or more is getting 6500/- or less per month (Basic + DA only). No one can opt for any decision contrary to that.

Secondly, if an employee is already covered under PF, then it does not matter what his salary is at this time. The case will remain the same if he comes from another company where he was covered, to a company where PF applies, whether he crosses the limit of 6500/- per month.

Lastly, if a new employee joins who was not covered before (may be a fresher or whoever) & his Basic + DA is more than 6500/- per month, then it is the employer who may decide whether to include him in PF or not.

Thanks, Mr. Jain, for your valuable info. Please clarify one more thing. What if an employee joins from a company where PF was offered to a company where PF is not covered? Does it still call for legal compliance.

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I have corrected the spelling and grammar in your text. I have also ensured proper paragraph formatting with a single line break between paragraphs. If you need further assistance, feel free to ask.

If employees are only 3-5 and an employee wants to apply for PF, then what can be done according to the law? Please reply.

Can anyone help me? I want the complete list of the rate of interest on PF contributions from FY 2000-01 until now.

Employers have to deduct 12% of the basic salary + D.A. for the PF contribution if more than 20 employees are working in the organization. However, if an employee does not wish to avail of this benefit, they will need to fill out Form-11 and submit it to the RPFC.

Could you please clarify the second point of the employee coming from "A" organization where he/she was covered under PF now joining organization "B" (basic above Rs.6,500 and employee strength of over 20), will the organization "B" be required to cover the person under PF?

Dear All,

Let's put it in the following manner:

1. Companies with fewer than 20 employees are not covered under the purview of the PF statute; hence, they are not duty-bound to cover their employees under PF. If employees insist on PF coverage as a goodwill gesture, the employer may agree, but the decision is entirely the employer's own.

2. Companies with more than 20 employees are bound to cover employees under PF. There may be employees with basic + DA below Rs 6500 and employees with basic + DA above Rs 6500. While PF coverage for employees with Rs 6500 is mandatory, the other category with over Rs 6500 is optional.

3. If an employee was covered under PF with their previous employer and is now joining a company with a basic + DA over Rs 6500, they will be covered under the PF statute.

4. If the employee strength of an organization drops below 20, for example, from 60 to 15, the employer will still have to contribute to PF for the remaining employees.

The Regional PF Commissioner may take legal action against an employer for non-compliance and violation of the Act.

Dear Jhuma,

Can the employer decide not to give PF benefits? Can an employee refuse PF benefits? Please clarify.

PF is an optional choice for both the employee and employer if the basic salary is more than Rs. 6500. In this case, it is based on mutual consent between the employee and employer as to whether to deduct it or not. There is no compulsion to deduct PF on amounts exceeding Rs. 6500.

I hope this clarifies your query. Let me know if you need any further assistance.

Best regards

Hi,

As per the Provident Fund MP Act, 1952, Provident Fund deduction is compulsory from day one. You can exempt the employee if his/her salary/wages are more than Rs. 6500/- (Basic+DA or Basic) at the time of joining - i.e. exempted employee. If the employee is willing to join the Provident Fund even if his/her salary is more than Rs. 6500/- per month, the provident fund contributions can be restricted to Rs. 6500/- only.

Alternatively, if both the employee and employer are willing to contribute PF contributions for an employee whose salary/wage is more than Rs. 6500/- at the time of joining, PF deductions can be made with written consent. However, the employer cannot have the right to stop PF deductions from the salary/wages of employees, and at the same time, the employee has no right to refuse such deductions from their salary/wages.

Hope the above is sufficient.

Thanks & Regards

I just would like to point out that some members use the site to shirk doing minimum work on their own. Look at this question: "Is paying PF optional?" Young members should read the basics and ask clarifications where intricate interpretations are involved or there is a lack of clarity. A casual approach could put you in difficulty since you are blindly depending on opinions of individuals. The basic law is not opinion, and it has to be read.

This is a valuable and useful site. But use it with discretion for best benefits. "I would like to start an ADVt firm. Can anyone give suggestions?" Like queries would not be in the spirit of a site of serious HR professionals.

Warm Regards,

Rationalraj

Hello All,

I have a question: As per the PF Act, deduction of PF beyond Rs. 6500/- becomes optional for the Employee and Employer. If an Employee and Employer decide not to exercise the option of deduction of PF beyond Rs. 6500/- (limiting the Basic to Rs. 6500/-), will it in any way affect the Gratuity calculation? Can an employer use Rs. 6500/- Basic Pay for PF purposes and use a different Basic Pay (say Rs. 25,000/- Basic Pay) for Gratuity purposes?

Thanks in advance....

Provident Fund amount is calculated from Basic Salary only. So I have stated accordingly. As per your statement PF@12 should be deducted from earned basic salary only rather than fixed basic salary.

PF is deducted @ 12 % of basic pay from employee salary. Employer also contributes same amount (12 % of basic) to PF account of an employee. The employer's contribution is tax-free up to 12 per cent of the salary. Any contribution by the employer over and above this limit of 12 % is taxed in the year in which it accrues. So we have deduct PF amount from an employee from his Earned Gross Salary of 12% rather than Fixed Gross Salary.

Example Case Study:

If your basic salary is Rs 10,000 per month (dearness allowance does not form part of the pay) and the employer contributes Rs 1,500 per month towards RPF, 12 per cent of the basic salary, i.e. Rs 1,200 will be tax-free and the balance Rs 300 will be taxed. RPF also entitles you to rebate under Section 88. Interest up to 9.5 per cent per annum is exempt from tax and any rate higher than this is taxed.

PF @ 12% is to be deducted from the earned BASIC SALARY, not on the earned gross salary.

Dear friends,

Could anyone provide me with the PF calculation for preparing the PF challan? We have one staff member with a basic salary of Rs. 7750/-. Kindly assist with this matter.

Thank you,
Sanjay

Does this mean that if a person is joining an organization and the organization has PF, if the employee has basic+DA more than 6500, the employer has the option of giving the PF or not?

Also, should contractors be included in PF? For example, contract office attendants, security, or tech support contract staff hired as contractors.

Dear Jhuma,

There is only one situation in which an employer can decide on the PF deduction of an employee: if at the time of joining, the employee's basic + DA is more than 6500, provided that previously no PF was deducted from his/her salary. Otherwise, it is not at the discretion of the employer or the employee; it is a statutory compliance, and both parties will have to comply with it.

Thank you,
Rajesh Sharma

No PF is not optional. Every employee has to be incorporated in PF; a minimum of 10 employees should be there at the time of starting PF.

First, check if the PF Act is applicable to your area or not.

There are two kinds of organizations: one exempt and the other not exempt. In the former, the company can have its own fund and will control the funds as per the directions. In the latter, we have to follow the procedure laid down by the act and rules.

Any employee who draws more than 6500 has to be covered under the act.

In case it is more than 6500 per month (Basic and DA), the company will have two options:

a. Not to cover them because there are no legal obligations.

b. To cover them to get the employee's goodwill. There are two more sub-options:

i. If the company wants to cover them, let them be covered to the extent of 6500 only; for the remaining amount, they need not be covered.

ii. To cover them for the full amount.

However, I always feel that we should follow the law and not cover them. They can be reimbursed in many other ways. This will keep the employee happy, and we are also following the law to avoid complications.

Nagaraj

Email: nagaraj1946@gmail.com

PF can be optional;

1) If the employer is employing fewer than 20 employees, the Employees' Provident Fund (EPF) and Miscellaneous Provisions Act and rules made thereunder are not applicable to that organization.

2) If the employer is employing 20 or more employees, they can seek exemption from the EPF Act from the Regional Provident Fund Commissioner (RPFC).

3) For an organization covered under the EPF Act, an employee can request exemption if their salary is Rs. 6500/- per month or less by seeking special permission from the RPFC.

4) If the salary exceeds Rs. 6500/- per month, the employee can request exemption from their employer by providing a written statement of exemption.

I hope this is what you require.

Thanks,
Shekhar

The Employees' Provident Funds and Miscellaneous Provisions Act, 1952 basically came into existence to ensure compulsory PF, EPS, etc., for the benefit of employees. Assuming your company comes under the act (check applicability), it is a compulsory provision for them to follow. So, I guess even if the employee doesn't want to, the company has to. :-D Let's see what others say.

Regards

Dear Jhuma,

Optional PF is in only one condition. That is, when an employee's Basic Pay is equal to or more than 10,000/- per month. Otherwise, it is compulsory to deduct and make the same contribution by the employer. I hope it makes sense for you.

Thank you and Regards,
Bhagwan Tolani
Sr. HR
TM Group
Mumbai

No one can deny the PF withdrawal or transfer. If the employer's dining facility is close to the PF office, there is a cell in the vigilance department where you can write an application. Mention the company name, your PF number, and the company name in the application. After that, the employer will contact you to discuss a compromise.

If you encounter any issues, call the area PF inspector, or alternatively, contact the main office to inquire about the area inspector's mobile number.

Riyaz

If the establishment is engaging 20 or more employees and the basic + DA salary is 6500 or less, the PF Act will apply. As per the Act, it is mandatory, not optional. It will be compulsory for both.

Please appreciate the following:

1. If an organization is eligible for coverage under the PF Act/Scheme, it is mandatory, not optional.
2. If all employees are on a salary of Rs.6500/- or more, coverage is not necessary.
3. If an employee, who was a PF member in his earlier company, joins another company which is not covered under PF, he will not enjoy the benefits of PF since the new company is not covered under the PF Act.
4. However, most progressive organizations, irrespective of the qualifying criteria, do extend the benefit of PF to their employees.

Best Wishes, Vasant Nair

I think, in case of fewer than 20 employees, it's the wish of the employer to give PF or not. It is on a voluntary basis if there are less than 20 employees.

Regarding that 12%, I think 10% should come from the basic salary and 2% from the DA.

Dear Mr. Rational Raj,

First of all, I would like to clarify that lengthy questions will never get you replies; people have no time to read. Secondly, a simple question will always give you different perspectives and learnings.

I am sure all of us have at least some new info out of it. Even though we are aware of basics, there was a reason for posting this question.

Even I refrain from posting non-relevant mails. I am sure that this question was not a wastage of server space and time.

Hi,

First, it is a statutory compliance to deduct PF if the employee of an organization whose strength is 20 or more is getting 6500/- or less per month (Basic + DA only). Beyond crossing the ceiling of P.F., it totally depends on the employer whether he provides it or not.

With regards,
Balvinder Singh

Yes, PF is optional if the employee's basic rate is higher than 6500. Form No-11 will be deposited only, and this will count as exempted. PF will only deduct on earned basic, and gratuity on the last basic rate.

Chandra

Also, the employer can set an upper limit (cut off) for the PF. So, the minimum contribution will be at the cut off for both the employer and employee. The employee may, however, increase his share of the contribution as VPF.

Dear all,

Everybody has a right to their own opinion, and as the person who started this thread, you should not attack their comments. In fact, I also consider your question trivial, to say the least; and foolish and silly, to speak of my opinion. I was going to post my opinion but refrained because I found members taking your question seriously and giving their opinions. However, I compliment Rationalraj for coming out with his honest and true opinion. Kindly reconsider your question.

Dear Mr. Rational Raj,

First of all, I would like to clarify that lengthy questions will never get you replies as people have no time to read. Secondly, a simple question will always give you different perspectives and learnings. I am sure all of us have at least some new information out of it. Even though we are aware of the basics, there was a reason for posting this question. I also refrain from posting non-relevant emails. I am sure that this question was not a waste of server space and time.

I just would like to point out that some members use the site to shirk doing the minimum work on their own. Look at this question: "Is paying PF optional?" Young members should read the basics and ask for clarifications where intricate interpretations are involved or there is a lack of clarity. A casual approach could put you in difficulty since you are blindly depending on the opinions of individuals. The basic law is not opinion, and it has to be read. This is a valuable and useful site, but use it with discretion for the best benefits. Queries like "I would like to start an ADVt firm. Can anyone give suggestions?" would not be in the spirit of a site for serious HR professionals.

Warm Regards, Rationalraj

Yes, Rationalraj, I agree with you notwithstanding the explanation given by the thread-starter, Jhuma Tiwade. It seems her explanation is in hindsight, based on the response. In fact, the responses of our members have brought glory to this silly, childish question.

Dear Members,

Let us take a look at the question again......

What is the purpose of asking this question is not given.

On the same vein, can I ask a question like, "Can the employer decide not to deduct Income Tax? Can an employee refuse to give Income Tax?"

or "Can the employer decide not to give salary?"

Someone asks, "What is HR?". Another comes up with "Suggest a name for my shop."

One can go on ad absurdum.

It is good that the helpful CiteHR members always help with their views.

But some line should be drawn on what is a good question or a bad question; or even an acceptable question.



One should not be allowed to get away with anything that comes to one's mind.

The poster's argument that: "I am sure all of us have at least some new info out of it. Even we are aware of basics but there was a reason for posting this question." is neither acceptable nor correct.

There was no new learning involved here. Everything is there in the Act. One has to take the trouble of studying the Act, rather than shirking from taking any pains, as you have rightly observed.

Secondly, the poster has still not disclosed the reason for asking this question. But many of us now know the reason.

Regards.

Can you please tell me how I can get back my PF amount from my previous company? Actually, I had deposited Rs. 40,000 with them as my PF amount. I left the company in February this year.

Hello Sir,

Could you please provide the exact rules for PF? I am receiving a salary of more than Rs 6,500, and I do not wish to have PF and ESI deducted from my salary. Is this possible? Kindly guide me. Also, could you recommend a website or book that outlines the PF rules for my reference?

Thank you,
Kalpesh

I too fully agree with my friends who have opined that this SITE should be used in a meaningful manner.

I have also, in my earlier responses, stated that if one were to ask specific questions, they would get specific answers. This valuable SITE should not be thought of as a soft option where someone else is expected to do the hard work for you.

A Personal Manager (he called himself this) wanted to know if he was required to pay for not giving notice period. Someone wanted to know if, in an interview, a female candidate can be asked questions about her plans for starting a family. There were several responses that carried a detailed account of the Maternity Benefit Act, which was totally irrelevant.

We should all be a little more serious and careful about using this platform as a learning ground.

Best wishes,
Vasant Nair

Dear Anoopa,

It is not mandatory to deduct PF contribution from him because his basic is more than 6500. So, it totally depends on the mutual understanding between the organization and him.

Chandra

I really feel pity that people have wasted their time on generalizing whether the post was silly and deciding whether whoever started is dumb. I had posted this very simple to some silly questions because one of my friends has been in the above situation and we had a good discussion. Hence, I felt like having a human resource perspective and not the bookish knowledge. As I clarified that I wanted to avoid the entire Mahabharat, I had posted the one-liner. If you felt it was silly, you shouldn't have replied to it. You have no right to justify anybody's threads. Just not done yaar. Very bad.

Two months after you quit the company, you can withdraw your PF by filling up application forms (Form 10C and Form 19) available with your employer. You will also need to attach a canceled cheque leaf for the money to be transferred. Submit the forms and the cheque to the employer, and they will take care of the rest. Regular follow-up is a must. The PF office claims that the money will be transferred within 90 days, but be prepared if it takes longer.

I agree with you, Mr. Tiwade. People have written long replies on how threads should be and stuff but want one-liner posts. LOL.

Dear Jhuma,

There is a phrase called "with reference to context".

Just like you explained in this post (which has made the situation very clear) had you asked/framed the question with a reference to context like:

"One of my friends was arguing that 'PF need not be mandatory, it can be optional'. Is he correct?"

It would have solved the problem, without it being a LENGTHY QUESTION.

But simply asking "Can PF be optional?"!!! It's like asking "Can theft be a crime?"

I guess the old school teachers of the previous century would have caned you on you-know-where. :-D

Please understand, senior members are hard-pressed for time and at times they can feel exasperated with such questions that do sound (pardon me for this) silly.

Ideally, you should have posted this question under the "Talk To Seniors" threads and not under the HRM thread; under the Human Resources Section.

And please refrain from bad-mouthing members. CiteHR is a wonderful site for HR professionals, and the members are generally very HELPFUL. Please remember, anybody who is posting his comments (whether it's to your liking or not) has spent his precious time reading your posts and responding to it.

It is OK if you cannot be THANKFUL to them for expressing their personal opinion.

Regards.

Hi,

What happens if an individual has compulsory PF deductions at X company, then leaves this company and joins Y company where there is a facility to choose PF deductions? If he opts out of the PF at Y, can he do so?

Regards,
Renuka N.

Yes, if his salary is beyond the eligibility limit and the new company Y does not have a policy on voluntary contribution. (In fact, it is very common in the industry. However, it does affect the pensionary benefits of the member).

However, I invite our senior members to give their opinion.

Regards.

For clarification, I believe firmly now that PF at 12% should be deducted on B+DA if an employee opts for it, even if his previous B+DA was below that threshold.

If an employee joins from another organization where he was covered under PF, the company is obligated to enroll him in PF contributions, leaving no options for the employee.

If he is a recent graduate, such as an MBA or IT professional from a renowned institute, where the company typically offers higher salaries, the decision to enroll him in PF or not rests with the company, as this marks his first job. (Option available)

In all other scenarios, PF deduction is mandatory. When joining a new company, it is initially optional for the company to limit their contribution based on ₹6,500 or the entire B+DA, subject to negotiation.

Mahesh Kate

I would like to know if anybody can tell me what anybody is supposed to do when his company is not issuing Form 16 after deducting TDS every month and issuing salary slip. How to file income tax returns? What does the IT Act say? Please help urgently.