Employer PF Contribution Dilemma: Should We Match Employee's Full Contribution or Cap It at Rs. 6500?

Dear All,

An employee is drawing more than Rs. 6500 as basic, and PF contribution is also being paid as per the rules. Does the company have to pay the same contribution the employee pays, or can it restrict itself to Rs. 6500 for the employer contribution?

Please clarify.

Regards,
Bhuvana AL

Dear Bhuvana,

Employer contribution to PF for the employee having a basic salary exceeding Rs 6,500 can be limited to Rs 6,500.

With regards,
Shanu

Hi Bhuvana,

As per the PF rules, Employee PF contribution can be paid for the full amount of their basic, or it can be restricted to 6500/-. If the employee contribution exceeds 6500/-, then there will be more burden on the employer to pay more admin charges. So, most of the companies restrict employee contribution to 6500/-. Even the employer contribution shall also be restricted to 6500/-.

There are some companies where the employer & employee contribution will be for their full basic, and they will add it to their CTC. Then the company is not losing anything from their pocket.

Jeeva

Dear Bhuvana,

There are no restrictions on PF contributions from either the employee or the employer. There are companies that pay PF contributions regardless of the basic salary. However, for employer contributions, the basic salary is limited to Rs. 6,500 for Pension Fund contributions.

Regards,
Rajendra

Dear,

As per rules envisioned in EPF and MP Act and the schemes framed thereunder, the statutory wage limit is Rs. 6,500. An employee can contribute at a rate equal to or higher than the wage, with employer contribution restricted to Rs. 6,500.

If the employer contributes at a higher wage, administrative charges shall be applicable at the higher wages. Moreover, as per the rule to contribute at a higher wage, the employer should seek permission from the Office of RPFC.

One more thing, contributions at a higher wage for the pension fund can be made only when paid from the date of joining.

Rajanikant Mishra

Dear,

As per the provisions of the Act, the amount is restricted to Rs. 6500/-, but it is at the discretion of the management whether to entertain the restriction or not. In PF (account number 1), any amount over and above will be booked in this account.

However, for pension, any amount we pay is restricted to only Rs. 6500/-. The remaining contribution amount will be booked into account number 1 in PF.

Hi,

It is the option of the company to pay the employer contribution beyond Rs. 6500. Otherwise, you can restrict employer contribution to Rs. 6500 on basic + DA.

Regards,
Kanths

As per statutory norms, the PF contribution by the employee and employer has to be the same amount. Either the company can utilize a ceiling of having both parties (employee & employer) contribute only 780/- per month (in case of employee's basic salary being 6500 or above) or stick to the 12% of the basic salary.

Hope this clarifies.

Executive HR
Kingfisher Airlines Limited
Mumbai

As per law, Employer contribution will be 12%.

Bifurcation:

8.33% - Pension fund (Calculation on Rs 6500. So the maximum will be Rs 541 Per month).

3.67% - Provident fund (on basic + DA of the employee's salary).

If suppose, the employee's basic + DA is more than Rs 6500, e.g., Rs 10,000, then the contribution to the Pension fund will be Rs 541, and the adjusted amount will be transferred to the Provident fund amount, which will be 659.

Hope this is clearer. 8-)

As per the PF Act, the PF contribution by the employee and employer has to be the same amount. In the case of an employee's salary being more than 6500 or above, then 12% of the basic salary will be taken for PF calculation from the employee, and the employer will be paying 13.61% for PF.

Employer Contribution:
- 13.61%
- 3.67% = Provident Fund (A/c No.1)
- 8.33% = Pension Fund (A/c No.10)
- 0.5% = EDLIS - Employees Direct Linked Insurance Scheme (A/c No.21)

Administrative Charges:
- 1.10% of emoluments = Provident Fund (A/c No.2)
- 0.01% of emoluments = EDLIS (A/c No.22)

Hi Bhuvana,

Mr. Rajendra Marathe is correct. There are no specific rules that restrict the basic salary to Rs. 6,500. You can contribute to your PF based on your actual basic salary, if it exceeds Rs. 6,500. However, if your basic salary is more than Rs. 6,500 and you contribute your PF amount based on that, your company must also contribute the same amount based on your actual basic salary. This can put a heavier burden on the employer to pay more money, including higher administrative charges. Therefore, many companies limit the PF-eligible basic salary to Rs. 6,500. The extent of benefits provided to employees depends on the management's rules.

Rs. 6,500 is specifically restricted for the Pension & EDLI parts only. The RPFC can offer Pension & EDLI benefits up to Rs. 6,500 only. You can contribute to the Pension account (A/C - 10) up to Rs. 541 (Rs. 6,500 x 8.33%), not exceeding that amount.

Regards,
Dibyendu Ghosh

Dear Bhuvana,

The company need not pay more than Rs. 6500 in contributions. However, in some companies, they are contributing based on the total salary as well.

Hi, This is Mahesh here,

I applied for my PF on 26/06/2009. However, I have not yet received my PF amount. My PF number is 7921. Could you please provide me with an update regarding the same?

Thanks and regards,
Mahesh K
9980063726

Hi Mahesh,

Did you submit the forms to the PF department or with the earlier employer? If you submitted them to the employer, it will take a minimum of 90 working days as there are a few processes involved. If you have submitted the forms to the PF department, it should reach you within 30 days. However, due to delays in the PF department, it may take more than 2 months.

In any case, it is advisable to contact the PF department to inquire about the status. Make sure to provide your full PF number or bring the acknowledgement with you.

Please let me know the company location and the PF office location.

Regards,
Jeeva
9343753361

As per the P.F. Act/rules, the employer's contribution towards P.F. is 12% of the basic salary. Out of this, an amount of Rs 541/- on Rs 6500/- @ 8.33% is paid towards the pension fund, and the remaining balance of Rs 231/- is added to the employee's account (6500x3.67%). Even if an employee draws more than Rs 6500/- per month, the total contribution towards the Pension Fund is restricted to Rs 541/-; the balance goes to the employee's account. If P.F. is restricted to Rs 6500/-, the burden of P.F. administrative charges of 1.61% on the total P.F. salary is saved by the company. Nowadays, many companies add the same to the Employees' C.T.C.; hence, it is no loss to the company, and the employee may feel that more amount is being added to his P.F.

Hello Bhuvana,

If the employee is contributing PF on more than Rs. 6,500 basic, then the company also has to make the same amount of contribution. Only if the employee is also restricted to Rs. 6,500, can the company restrict it to Rs. 6,500.

Regards,
Kemparaju

Dear,

There are no such obligations on the employer. If an employee wants PF on more than ₹6,500 basic, then they have to pay 100% from their salary.

Best Regards,

Sunny Mahajan
HR Executive

Hi All,

In the current scenario, most companies are hiring based on CTC, which includes both portions of PF (employee & employer). In such a situation, there is no point in having a ceiling of up to 6500/- as all deductions are to be made from CTC itself. Companies that are hiring on a cash-in-hand basis can restrict PF up to a basic of Rs. 6500/- as per statutory requirements.

Hope I am correct.

Regards,
Nishu

As per Central Excise PF department, PF is restricted to Rs 6,500/- on basic salary. However, it depends on the employer's management whether they apply PF for all employees or only for those whose salary is below Rs 6,500/- (basic). Both employee and employer should contribute 12% each towards PF. Another common policy is that in most private limited companies, the employer's contribution is deducted from the employee's Cost to Company (CTC). This can sometimes lead to confusion or misinformation during the appointment process, especially regarding the CTC structure. Therefore, it is essential to be aware of this practice and clarify any doubts during the recruitment process.

As per the act, the employee should contribute 12% of (Basic+DA) and the employer should also contribute 12% of (Basic+DA). However, 12% of the employer's contribution will be calculated as follows:

Employee Pension Scheme = (Minimum(PF Wage, 6500) * 8.33%)
Employer PF contribution = Employee PF - EPS calculated above

Regards,
Arul Prakash D.
Payroll Analyst
Icomm Technologies

Dear Sir,

Good afternoon. I am an HR Executive in one of the companies. I have full responsibility to facilitate PF and ESI for my employees.

Please guide me on the procedure to approach the authorities and how to send the necessary forms.

Regards,

Santhosh Kumar.G

Dear All,

In line with the same issue, I request a response to the following scenario: Employer and employee are currently contributing 12% of the basic into PF (basic being higher than Rs. 6500/-); and the employee now wants to restrict his contribution to only 12% of Rs. 6500/- basic, i.e., Rs. 780/- per month. Can this change be implemented in the salary, with employer PF contributions being part of CTC?

The purpose behind this request is that the employee wants a higher take-home package. He will receive the amount from his reduced PF deductions plus the employer's reduced contributions as an increased take-home (net) salary.

What are the implications from a statutory standpoint of implementing this change?

Appreciate some inputs on this.

Regards,
Rose S

Dear All,

As per statute, the company is bound to pay PF contribution up to Rs. 6500/-, but beyond the said amount, it is entirely the company's discretion to pay or not to pay the matching amount. Many companies are paying PF contributions on basic salary + DA exceeding Rs. 6500/-. It all depends on the company. Since PF is a social security scheme and considering the financial distress a person might face in old age, most of the big MNCs pay the PF contribution based on actual basic salary + DA.

Hi Bhuvana/Jeeva,

PF is a part of CTC. Therefore, when negotiating your salary for a new job, let's say Rs. 5 lakh is the annual CTC, the company cannot deduct 24% in total.

Some companies argue that both Employee (Ee) PF and Employer (Er) PF contributions are included in this CTC agreed upon by the employee. This means that Ee 12% and Er 12% are already accounted for in this CTC, and therefore, a total of 24% deduction cannot be made. I hope this explanation clarifies things for you.

The PF office has strongly emphasized that deducting in this manner is illegal. This topic has been discussed on numerous occasions in this forum.

Regards, Chandru

Hi, I am quite satisfied with your explanation, but in the normal CTC that we offer to our employees, is the employer's contribution included in that? If not, then how can one maintain the amount from the employer contribution, as it is an option for a particular employee whether they would like to go for PF or not. Please provide me with a necessary solution in this regard. Thanks & regards, Sanjay Saha HR Executive

Dear All,

PF can be calculated on whatever percentage suits your company. In the case of basic more than 6500, only 8.33% of 6500 (Rs 541) will attract EPS, which will be deposited in account no. 10; the rest will go to account no. 1.

Lalit Kandpal

Dear all,

The management consultancy is exempted from labor law. Please provide details regarding this issue.

Regards,
Santhosh

Dear Bhuvana,

If an employee draws a basic salary of more than ₹6500, then their contribution is based on the actual basic they have drawn. Additionally, the employer will also contribute based on the current basic salary.

For the ceiling amount of ₹6500, both the employee and employer must agree mutually to restrict the contributions within this limit.

Thank you,
Ankur Rana

Hi Bhavana,

According to my knowledge, I am providing the information. If any amendments are required, please let me know.

The employee has the option to contribute a high percentage. According to the Provident Fund Act of 1952, the minimum contribution is 12%. If you wish to contribute more, you can do so. However, the company will only pay 13.61%.

Please review the revised text for accuracy and clarity. Let me know if you need further assistance.

Hi Jeevarathnam,

I am not clear about the following. Can you please explain the same?

There are some companies where the employer and employee contributions will be for their full basic salary, and they will add it to their CTC. In this case, the company is not losing anything from their pocket.

Thanks

Hi all,

It appears that many have misunderstood some points. I am uploading the models approved by the RPF commissioner himself for your reference. Please consult your Finance department and choose one that suits your company.

Regards,
Chandru
Consultant

Dear Priyamathi,

If the employee's basic is more than 6500/-:

1) If his basic crosses 6500/- due to the increment, then the employee is eligible for PF.
2) If any employee joins the organization and had the benefit of PF in a previous organization, then they are eligible for PF here as well.
3) If an employee's basic is more than 6500/-, they will not be a mandatory beneficiary of PF. If the organization and employee are interested, they can benefit.
4) If the basic is more than 6500/-, the employer can deduct the PF amount either up to 12% of 6500/- or the entire basic. For example, if the employee's basic is 10000/-, then the PF amount can be either 780.00 or 1200.00.

Yes, you are right. The same practice is followed in most organizations. Hope this clarifies things.

If you have any doubts, you can call me on my cell at 9343753361 or 9164199051.

Jeeva
9343753361
9164199051

Hi,

Can anyone tell me about PF calculations on a restricted basic salary? Can a company calculate PF for some employees based on a restricted basic salary and for others purely on the basic value (even if it exceeds Rs. 6,500)?

Thanks,
Mahesh

Hi,

I just went through some of the postings regarding PF contribution. Some say that an employee, as well as an employer's contribution towards PF, is 12% in both cases, and some say it's 12% from the employee's part and 13.61% from the employer's part. Please tell me which is the appropriate one in practice.

Would like to add another question... Are all employees eligible for PF contribution? What are the prevailing conditions?

Regards,
Sushmita

Hi Sushmitha,

You are right. Employee contribution of 12% is his PF amount. Employers' 12% will be further divided into PF & Pension fund as 8.33% & 3.67%, so the total is 12%. The remaining 1.61% is admin charges. They are further divided as 1.1% (Admin Charges), 0.5% (EDLI Charges) & 0.01% EDLI Admin charges, so the total will be 13.61%.

Hope now you are clear.

Jeeva

Dear Sushmita,

Please go through the Excel sheet attachment in my above reply. I have provided various models of contribution. For all categories, the administrative charge is 1.1% of the basic, EDLI is 0.5%, and EDLI Inspection charge is 0.01%. For basics above Rs. 6500/-, EDLI and Inspection charges are calculated on Rs. 6500/- only. So, if you add all the employer's contributions, it totals 13.61%, i.e., (12+1.1+0.5+0.01). Got it right...???

I hope the doubts are clarified.

Regards,
Chandru

Dear seniors,

Is there any PF limit? What is the limit of the basic salary for PF deduction? I am waiting for an answer.

Regards,
Pari Mourya

Hi Pari,

The basic salary of the employee should comply with the rules of the Minimum Wages Act. It can be equal to or higher than the minimum wages; it shall not be lesser than what is mandated by the act.

Regards,
Jeeva

Dear All,

Can anyone send me a model copy of Form 19 and 10C duly filled in to enable me to follow the same method while submitting settlement forms to EPFO? I am unable to understand the third page of Form 19, which is Form 3A, where they have provided a column for break in service. Please help me.

Thanks and Regards,

K.C. Seshadri

I am from Gujarat. I have a doubt: if an employer starts paying PF at ₹6500/-, then does the employer need to pay for all employees at ₹6500/- even if some employees' basic salary is less than ₹6500/-? Also, if we were previously paying based on basic salary and now want to pay at ₹6500/-, is there any procedure or formalities to be fulfilled?

Please let me know if you need any further clarification.

If the employee's basic salary is above ₹6500, then it shall be restricted to ₹6500. If the basic salary is less than ₹6500, then contributions from both parties are applicable only on the existing basic salary.

For example, if the basic salary is ₹7500, then PF contributions shall be restricted to ₹6500. If the basic salary is ₹5000, the PF is contributed only on ₹5000.

Thank you.

Thank you, Jeevarathnam. We are currently paying 8.33% on ₹6500 but 3.67% on the basic salary. Can we now restrict ourselves to paying PF on ₹6500 at 3.67%?

Dear All,

The thread has more than 9,000 viewers and as many as 48 replies. I read all the replies and got confused myself. I will say, rather, I have forgotten everything about PF which I learned during the past 30+ years of exposure, including its spelling. NOT A JOKE!

Workshop by NATRSS

I have, therefore, decided to attend a workshop by NATRSS (National Academy for Training and Research in Social Security, New Delhi). This institute under EPFO, Govt of India conducts 2-day regular workshops on PF in New Delhi. This workshop will refresh my mind which is distracted now.

Those who are interested in joining me can approach the institute directly.

(The correct answer to the query raised in this thread can be found in one of the postings by me in the past 1 to 2 months. I do not wish to give it again because I am sure members will continue with their discussion the way they want. I am sorry to say this.)

I don't know why many of the members are confused with PF statutory compliance. There's nothing wrong with Mr. Korgaonkar's outburst regarding the wrong practices followed and suggested.

Based on the numerous postings, I believe the main confusion starts from the restriction up to ₹6500. If so, I can raise the following queries:

1. If you can restrict the total PF employer/employee contribution to ₹780 for all employees, then you can maintain the basic as ₹6500 flat. Why should you fix a percentage component on Basic, HRA, Conveyance, etc.? Many companies have started following this ₹780 model just to minimize their contribution. Nowhere on the EPFO site is it officially stated that PF contribution (3.67%) can be the employer's choice on ₹6500. Many PF commissioners have not objected to this model. It had restricted only the Employee pension contribution (8.33%) and not the total employer contribution of 12% on the actual basic.

2. Another untold rule is that EPFO is insisting that on gross salary, the basic component has to be 70%. I once asked a PF officer if this is going to be the rule, in what way it is going to affect the employer when he is following ₹780 only? He had no answer.

3. If the employer PF benefit is only ₹9600 per annum maximum, we can open an RD account in a nationalized bank, so why a PF account?

4. If the basic for all is not fixed flat at ₹6500, will the employer not spend a high amount on bonus, gratuity, leave encashment, OT, etc.? These are directly linked to the basic, so why does the employer incur huge expenses on these?

5. If an employee serves for 30 years, at the max he can get ₹3 lakhs with interest. Is this an appreciable PF benefit derived from the employer irrespective of the position held? Does this not sound fishy?

In my view, if PF is not diligently followed as per Social Security law, it can go to scrap. The employee can at least remain a consultant without any headache from benefits.

Regards,
Chandru

Hi Biswaranjan,

Please provide me with the breakdown of the PF percentage, which is 13.16% as mentioned in the recent notification.

Regards,
Biswaranjan
9658707656

Hi Biswaranjan,

Attached is the revised PF rates bifurcation for 13.16%.