Navigating EPF Compliance: How to Handle Salary Breakups and Avoid Penalties?

Thanks.

Below are the sample salary breakups of my employees:

| Name | Basic+DA | HRA | Medical Reimbursement | Conveyance | LTA | Spl All | Gross Pay (per month) |
| --- | --- | --- | --- | --- | --- | --- | --- |
| A | 10000 | 5000 | 1250 | 800 | 833 | 2117 | 20000 |
| B | 15000 | 7500 | 1250 | 800 | 1250 | 4200 | 30000 |
| C | 7500 | 3750 | 1250 | 800 | 625 | 1075 | 15000 |
| D | 12500 | 6250 | 1250 | 800 | 1042 | 3158 | 25000 |
| E | 37500 | 18750 | 1250 | 800 | 3125 | 13575 | 75000 |
| F | 4250 | 2125 | 625 | 400 | 354 | 746 | 8500 |
| G | 30000 | 15000 | 1250 | 800 | 2500 | 10450 | 60000 |

When I was interacting with the PF Consultant, he said that the Basic+DA may be >6500 or >10,000 to >40,000. For example, if the employee has a Basic+DA of 10,000, he suggests calculating for 6500 as Basic+DA and leaving the remaining amount as Basic+DA 3500. However, we can show the below salary breakup for PF records:

| Name | Basic+DA | HRA | Medical Reimbursement | Conveyance | LTA | Spl All | Gross Pay (per month) |
| --- | --- | --- | --- | --- | --- | --- | --- |
| A | 10000 | 5000 | 1250 | 800 | 833 | 2117 | 20000 |

My questions are:
• If I follow my consultant's advice, will it create any problems for me?
• My employee strength is 40, and most of them have Basic+DA >10,000-40,000.
• Do we want to include the employees in PF or not?
• The consultant mentions that if the employee strength is 40, at least 30 employees should be in ESI and EPF.
• In case any PF inspectors come for inspection, they will definitely impose fines for not paying PF contributions.
• Currently, out of 40 employees, we have 5 employees in ESI and EPF.
• Please give me valuable suggestions to resolve my problem.

As per the Employees' Provident Fund and Miscellaneous Provisions Act, 1952, an employee whose salary (Basic + DA) at the time of joining the establishment is not more than Rs 6500 per month is to become a member of the Provident Fund. That means it is not obligatory, or it is optional for an employee whose salary at the time of joining is more than Rs 6500 to become a member of EPF. However, an employee, once they become a member of PF, will continue to be a member irrespective of their salary. Therefore, what is more important to decide whether one should become a PF member or not is the salary at the time of joining the establishment, and in this regard, the personal interest of the employee is not taken into account.

In your establishment, when all employees have a salary of more than Rs 25000 (assuming this is the Basic salary and not the so-called CTC) and no one has been covered so far, let them remain uncovered.

Please be informed that the salary for coverage and contribution towards PF means Basic Salary and the Dearness Allowance only.

Regards,

Madhu.T.K

I have been contributing to PF for the last 12 years, through various employers. Recently, I had joined a new organization, which is a new one, and they do not contribute to PF at all for all the employees. Now, what shall I do? Can I keep contributing to PF without my employer's contribution, or can I take the PF back? Then what happens to the pension contribution of my last 12 years' contribution?

You cannot get coverage of any statute by yourselves alone. If you have to continue with PF, first of all, your establishment should get coverage. Once the establishment is covered, you can transfer the PF accumulations together with your pensionable service to the new PF account.

I hope whenever you had a job change you had transferred the PF account from the previous employer to the present account. If so, your preceding PF account would have a credit of all the previous PF accumulations. You can either keep it or withdraw the Provident Fund accumulations and obtain a scheme certificate for the Pension Fund contributions. The same can be surrendered when you join another establishment to which EPF applies or when your present establishment becomes covered by EPF.

Regards,

Madhu.T.K

Dear Madhu Sir,

I need one clarification:

1. If someone joins the new organization with a salary exceeding 6500, does it depend on the employee whether they want to contribute to PF or not? Are there any formalities or any written forms that need to be sent to the PF office?

2. If someone joins with a salary of 6500 per month and later their salary increases to 30000 per month, but they do not want to contribute, what is the procedure for exemption?

I am looking forward to your reply, sir.

With regards,

Dear Karam,

As Madhu Sir has already clarified above, once an employee is covered under PF, it will continue until his services with that organization end, regardless of salary increases. Nothing is left in the employee's hands later on; it is necessary to continue under the act. For other employees whose basic pay is more than 6500 and do not wish to be covered under PF, they can use Form No. 11 for exemption (can be downloaded from the PF site).

Regards,

Please tell me in which act it is mentioned whether it is optional for an employee whose salary at the time of joining is more than Rs 6500 to become a member of EPF or not. Please suggest to me soon as it is urgent.

Thank you.

Understanding "Excluded Employee" in the Employees' Provident Fund Schemes, 1952

It is mentioned in Scheme 2 (f) (ii) of the Employees' Provident Fund Schemes, 1952, while defining the term "excluded employee." Please go through it.

Regards,
Madhu.T.K

My name is Khan Shah, and I am a new member of this site. I am a student in the final semester of an MBA with a specialization in HR, and I am currently working in production. I am keen on transitioning to the HR department and would appreciate your valuable suggestions for the interview process. Specifically, I would like guidance on how to calculate PF, ESI, HRA, and DA. Your help in this matter would be greatly appreciated.

Thank you,

Dr. Khan