New HR Executive Here: How Do I Distribute the 12% Employer PF Contribution in Salaries?

Hi Dipali, I have joined a company as an HR executive. I have never calculated the salary of employees before, but now I have to calculate the salary of each employee. The question is, I have to distribute a 12% employer contribution (PF) in each employee's salary. Should it be added to only the CTC, or how can I distribute those 12% in conveyance allowance, medical allowance, special allowance, and HRA?

Please help me out. Reply as soon as possible as I have to submit the salary sheet today itself.

Thank you.

Hi Dipali,

Kindly put your question clearly. From what I understood, the following is the answer: You need to show that as a part of CTC under the heading employer contribution to PF. You cannot distribute that in other allowances.

Regards,
Harshad

Hi Dipali,

You need to show that separately only. You can club the figure in Special Allowance until the time one does not opt for PF or PF formalities are completed.

Regards,
Harshad

Hi Dipali,

Under the heading of PF, this is the only way to show the PF by the employer. It cannot be clubbed with HRA, Medical, Special Allowance and will be a part of CTC.

Regards,
Dev Agarwal

Hi again, I am facing a problem. My employer is saying that whatever CTC is there, deduct some amount or percentage from CTC, and then adjust the employer's contribution of 12% in the basic salary. I am not understanding the exact way to adjust the 12% employer contribution in an individual's salary CTC. Can somebody help me out?

Regards,
Dipali

You can show PF 12% of basic in CTC, and the same will be considered as employer contribution. While preparing the salary sheet for a particular month, you need to deduct PF 12% on earned basic, which will be the employee's contribution.

For example, suppose an employee's monthly CTC is 20,000/-. The CTC breakup can be shown as Basic - 5000/-, HRA - 2000/-, Conveyance - 2000/-, Special Allow - 9150/-, Medical - 1250/-, PF - 600/- (employer contribution).

While calculating his monthly salary, the calculation will be as follows: Gross salary = 19400/- (Basic+HRA+Conv+Spl Allow+Med) PF deduction = 600/- (12% on earned basic / not arrived from the CTC) Net Payment = 18800/-

Hope this will clear your confusion.

Regards,
Pradip

Hi Dipali,

We understand that you have to work out the salary figures of your employees. For this, you should not distribute the employer's contribution of 12% towards PF. It is shown in CTC as it is a cost to the company which is paid to the State Bank of India along with the employee's contribution.

When calculating salary, you should add up the monthly payment components and deduct from it PF 12% on Basic, Professional Tax, ESIC, etc., that are applicable.

Regards,
Chandrakant

Employer's Contribution to PF and Salary Components

12% of the employer's contribution to PF cannot be clubbed with any other component of the salary.

What I understand from your question is that your management wants the gross salary offered to the employee to be the CTC of the employee and wants the 12% employer contribution to PF to be adjusted from other components. If that's your query, then what I suggest is that you deduct the equivalent amount from the special allowance part. That way, the cost of the employee will remain the same, although his monthly take-home salary will come down.

But that should not be done; it is unethical on the company's part.

Regards,
KP

Hi Dipti,

PF is deducted on only Basic, not on any allowances of the CTC. This PF deduction of 12% is included in the CTC monthly (employees' contribution).

PF will be deducted from the basic wage of the employee, and the same amount will be contributed by the employer. However, when you prepare the salary slip, only the contribution by the employer will be shown. Therefore, it is a completely separate category from the rest of the allowances. I believe this information will be helpful to you.

Thanks,
Neha Singh

PF Calculation on Basic + DA

PF is to be calculated on basic + DA only. The bifurcation of the employer's contribution of 12% is as follows: 8.33% towards family pension and 3.67% to be added to the employee's contribution of 12%. An employee is eligible for PF if their basic + DA is Rs. 6500/- PM or less. In the case of a consolidated salary, basic + DA does not apply.

Regards