Understanding PF Deductions: Should It Be Based on Full Salary or Pro-Rata for Partial Month?

Hello Seniors,

If an employee receives a basic salary of more than Rs. 6500.00, for example, Rs. 10000.00, and he is also a PF member, the company deducts his PF amount only on Rs. 6500.00, i.e., Rs. 780.00 (12%).

Now the question is,

If the employee is present for only 20 days and earns Rs. 6667 (10000 / 30 * 20) as basic pay in a month, should the PF still be deducted based on Rs. 6500.00 or on a pro-rata basis, i.e., Rs. 4333.00 (6500 / 30 x 20)?

Dear Bhuvan,

In your example, you mentioned Rs. 10,000/- as the salary. Could you provide a breakdown? Typically, a salary includes components like Basic, DA, HRA, Conveyance, etc. The PF deduction is applicable only on Basic and DA, and it must make up at least 60% of the salary.

Please share the detailed breakdown of the salary rates or if you are offering a consolidated amount of Rs. 10,000/-, ensure that a maximum of Rs. 6,500/- is paid monthly.

Regards,
R. Palaniswamy

Dear Bhuvan,

The PF amount will be calculated on a prorata basis. If a person has worked only for 10 days in a month, why will he/she pay the full amount of PF? Sometimes it may happen that the total amount of PF is almost near to the salary of 10 days. In that case, the take-home will be hardly any amount. So, it has to be on a prorata basis like PT and ESIC.

Regards,
Amee.

Hi Bhuvan,

It is a very valid confusion. Please refer to Clause 29(3) of the Employees' PF Scheme, 1952, which reads as follows:

"The contribution shall be calculated on the basis of the basic wages, dearness allowance (including the cash value of any food concession), and retaining allowance (if any) actually drawn during the whole month, whether paid on a daily, weekly, fortnightly, or monthly basis."

In simpler terms, the PF contribution is calculated based on the actual earned basic wages ++ earnings during the month, subject to a maximum of Rs. 780/-.

Hope this helps!

All the best,
Vijender Ragidi.

The contribution for a particular month is subject to [B](Basic Pay + DA + cash value of food concession + Retaining allowance) earned during that month. 6500, however, is the ceiling. With a joint request from the member and the employer, it can be charged on any amount higher than Rs. 6500.

An important factor from the employer's vision here should be, 'Employer's contribution for the month. Think, what if there are 100 employees of that sort. So pro-rata is adopted by many.'

Employees will be happy with pro-rata due to a simple factor that is 'securing a healthy monthly spending in a month where they have already lost enough for Absentism.'

Deduct on pro-rata as you calculated, i.e., 4333, OR go for the ceiling 6500, OR go for the actual 6667 Rs, ALL are permissible.

Regards,
Swapnil

It will be on a pro-rata basis based on the number of days the employee is paid his salary for.

Vasant Nair
HR Advisor

Hi Ravi,

PF will be deducted based on Basic + DA. In your case, the amount will be deducted on a pro-rata basis.

Thank you.

Hi,

What I think Mr. Vijender Ragidi says is correct because, in PF terms, the "basic wages" means all emoluments earned by an employee while on duty or on leave or on holidays with wages in either case, following the terms of the contract of employment and paid or payable in cash to him.

Regards,
Samsudeen M.S.

PF is always calculated on the basic (+ DA) earned during the month; hence on a pro-rata basis.

Regards,
Manoj Nair

It will be deducted on a pro-rata basis, the actual basic received by the employee.

Best regards, Mahendra

Hello Bhuwan,

Regarding PF Contribution - Employer should pay 12% of Basic salary, in which 8.33% will go to the Pension Scheme, and the balance of 3.67% will go to PF. When calculating the Pension Scheme, the employer should pay 8.33% of the basic salary (limited up to Rs.6500/ i.e. Rs.541/-), not more than that; the rest will go to PF.

For example, if the employee is getting a Basic salary of Rs.8000/-, Rs.541/- (8.33%) will go to the pension scheme, and Rs.419/- will go to PF. However, the employer has to contribute 12% of the basic salary, regardless of the amount.

Regarding Employee Contribution, 12% from the basic salary is unavoidable as per the PF Act.

Dear Mr. R. Palaniswamy,

Thank you for your reply. His salary breakup is as follows:
Basic - 12110.00
HRA - 6055.00
Trn. Allow. - 800.00
Medical - 1250.00
Spl. Allow. - 4005.00
----------------------
Total: 24220.00
PF: 780.00
------------------------
Net: 25000.00

If the employee is present for only 20 days and earns Rs. 6667 (10000 / 30 * 20) as basic pay in a month, should the PF still be deducted based on Rs. 6500.00 or on a pro-rata basis, i.e., Rs. 4333.00 (6500 / 30 x 20)?