Is It Legal for Employers to Limit PF Contributions to a Basic Salary of 6,500?

Dear All,

Good morning to all of you.

I have a query regarding PF. An organization is covered under PF, as are its employees. Some of the employees are receiving more than 6500/- as basic (let's say 10,000/-). Now, the question is whether the organization is obligated to contribute based on the 10,000/- amount or if they can contribute based on 6,500/- only. If they refuse to contribute on 10,000/- and only provide it on 6,500/-, is this legal?

All are requested to be specific while answering.

Waiting for your responses.

Dear All,

Good morning to all of you.

I have a query regarding PF. An organization is covered under PF, and so are its employees. Some of the employees are getting more than ₹6500 as basic (let's say ₹10,000). Now, the question is whether the organization is bound to give its contribution on ₹10,000 or they can give the contribution on ₹6,500 only. If they deny giving a contribution on ₹10,000 and give it only on ₹6,500, then is it legal?

All are requested to be specific while answering.

Waiting for your responses.

For more information, please visit: https://www.citehr.com/297630-employ...#ixzz1604otXHf

The EPF statute stipulates that the organization must pay 12% of the basic salary + DA, up to a maximum of Rs 6500 per month. For example, if an employee has a basic salary of Rs 10,000, according to the law, they are not covered under the EPF Act. However, the employer is free to make a deduction of Rs 750 from the employee's salary and pay an equal contribution of Rs 750 (which is 12% of Rs 6500). The employee and employer are free to make higher contributions, but there is no legal obligation to do so if the employee's basic salary + DA is more than Rs 6,500 per month.

Sara

If the employees are already enrolled in EPF, the employer is bound to pay at a ceiling salary limit of Rs. 6,500 (i.e., Rs. 780), even if their salary exceeds the ceiling limit. However, the contribution on actual salary beyond the ceiling is optional and not a statutory claim.

Regards,
Abbas P.S.

If an employee is getting more than ₹6500 as basic, then you can deduct PF only at 12% on ₹6500. As per the rules, the PF ceiling limit is ₹750 only (12% of ₹6500), so there is no issue.

If an employee is getting ₹20000 as basic, but the PF limit is ₹750 only.

Regards,
Harish

Hi R.k.,

No need to be confused. As per the EPF Act of 1952, if any employee is receiving basic wages up to Rs. 6,500, they will be entitled to PF deduction. In other cases, if an employee is receiving a basic wage higher than Rs. 6,500, for example, Rs. 10,000, it will be optional and completely dependent upon the employer. If they choose to deduct, they can do so. In this scenario, if the employer deducts PF on Rs. 10,000, it will be Rs. 1,200. However, we cannot contribute more than Rs. 541 to EPS. If you have any doubts, please email me at ssmbahr@gmail.com.

Thanks,
Sunil Sharma

Hi,

For people earning a salary above 6500/-, you have three options legally:

Option 1 - No PF
Option 2 - PF of Rs 780/-, i.e., 12% of 6500
Option 3 - PF of whatever the basic salary of the person is. For example, if the basic salary is Rs 20,000/-, then the PF will be 2400/-

The choice is entirely yours. In some companies, the choice is even given to the employees on whether they want to opt for PF or not.

Hope your query is cleared.

Riyaz

Please find the attachment for your query regarding PF.

Dear Sir,

In my opinion, deductions up to $6,500 are statutory. Beyond that, consent of the employee is necessary, and the employer will have to give an undertaking to the RPFC to the effect that he will pay equal contribution or restrict his contribution, besides paying the administrative charges on that amount. In the case where an employee, who upon joining, was not a member of EPF earlier but is earning above $6,500, the employer is not statutorily bound to make him a member of PF unless joint consent is provided by both parties.

Please help me. I joined a logistics company in Hisar (Haryana) on the 17th of March 2010 as a Trainee on a gross salary of Rs. 6500/- per month. At the time of joining, Mr. Sandeep Gupta (DGM) assured me that after three months, the salary would be automatically revised to Rs. 8000/- per month. This same line is mentioned in the enclosed Appointment letter as well. However, today, after completing eight months, they have not revised my salary or provided me with any confirmation letter. I have tried reaching out everywhere, but they are not responding to me. What should I do in this situation? Please advise me.

Dear Team members,

We are being asked to deposit PF on OT wages with arrears, employees'/employers' share, and are framed under Sec 7A for evasion of wages.

However, my opinion differs on the following grounds:

Section 2(b) of the Employees' Provident Funds & Miscellaneous Provisions Act 1952 defines "Basic Wages" as all emoluments earned by an employee while on duty, leave, or holiday with wages, in accordance with the terms of the employment contract, and paid or payable in cash. It does not include:

i) The cash value of any food concession.
ii) Any dearness allowance, i.e., all cash payments, by any name, made to an employee due to the rise in the cost of living, house rent allowance, overtime allowance, bonus, commission, or any similar allowance related to the employee's employment or work done.
iii) Any present given by the employer.

Despite this, the concerned authority has asked us to deposit PF on OT wages with arrears first and file the case thereafter.

Our management insists on not compromising at any cost. Please suggest how to address this issue.

With Regards,

Ashish K Sharma

Understanding PF Contribution Limits

As per my knowledge, the ceiling limit of PF is Rs. 6,500/-. However, if both the employee and employer agree, they can deduct the PF on the actual basic salary. The law states that only 8.33% of Rs. 6,500 goes to the pension fund, and the rest is allocated to the employees' provident fund account.

Please let me know if you need any further assistance.

Provident Fund on Overtime Wages

PF is payable on overtime wages as well. However, since you have to pay PF only up to Rs. 6,500 salary per month, the difference generally is not much. I do not know how Sec 2(b) is excluding overtime, but it is the rule, and everyone is paying PF on OT.

Hi,

The calculations will be in 2 phases. First, if the company wants to pay the PF for the person whose basic is more than 6500 - it can pay the full amount on whatever the basic is or it can cap the payment to 6500 basic, so the amount comes to Rs. 780 (not 750 as suggested by most - maybe a slight mistake in the calculation).

While calculating the Administrative charges (1.61%), you have to consider the actual basic amount for the 1%. Calculated basic (in this case, it is 6500) for the remaining 0.61%.

Regards,
Suneel.

The PF Act states that it is mandatory to deduct PF on the Basic salary up to 6500/- once an establishment is covered. An employee getting over and above the limit of 6500/- may opt for no deduction of PF by submitting his willingness to do so. If he opts for deduction, the employer has to compulsorily deduct up to 6500/-. Deduction on the full salary amount is optional and depends on the employer's will.

Dear Arbind,

In any circumstance, if an employee's salary is initially above the ceiling limit, the employer is not bound to pay PF even for a salary up to Rs. 6,500. It will be mandatory for already enrolled employees only. The administration charges of PF are 1.1% (not 1%), and hence this is to be paid on PF applicable salary (whether it is actual or subject to the ceiling limit, as the case may be). Towards EDLI, a premium of 0.5% and an administration charge of 0.01% (together 0.51%) will be restricted to the ceiling limit.

Abbas.P.S

Dear Mr. Sohashivan and all others,

Please note the following on PF:

1. PF is payable on Basic+DA (+Food allowance - most of the companies do not have this allowance/facility these days).
2. OT does not attract PF - No authority will ask to pay PF on OT.
3. Statutorily, PF is payable on Rs. 6500/- only. If companies are ready to pay PF on even more than Rs. 6500/-, they can do so, but it is not mandatory.
4. However, EPS is payable only on Rs. 6500/- even if the salary is more than Rs. 6500/-. That means any PF paid over and above Rs. 6500/- will get credited to the PF account only.
5. If a company is already covering PF over and above Rs. 6500/-, they cannot stop in the middle and must continue to pay PF.
6. Saswatha Banerjee has written that PF is payable on OT also. This is wrong.
7. Sumit Bamnia - as your query is on a different subject, please write an email to me at ramachandrak62@gmail.com.

I hope the matter is clear.

Regards,
K. Ramachandra
Bangalore

Dear All,

Kindly inform if there is any provision for physically handicapped employees in ESI/EPF where the employer is relieved from contribution on their side and the same is borne by the Government. This may be the case with many organizations where the personnel manager should be clear of any provisions for physically handicapped staff. Also, to which section does this refer?

Looking forward to a fruitful solution.

Regards

Dear Friend,

As per the Employees' Provident Fund & Miscellaneous Provisions Act, 1952, wages are well defined. The Act further states that Provident Fund deductions are to be made by the employer on wages up to Rs. 6,500.00 per month. Thus, the employer shall/may deduct P.F. contributions up to Rs. 6,500.00.

However, if the employee wishes to contribute beyond Rs. 6,500.00 of the wages, he/she can do so, but the employer is not liable to contribute beyond the wages of Rs. 6,500.00 as of today.

Trust this clarifies your query.

Best wishes,
Yogesh Giri

Well, PF is calculated based on the standard of 6500/- (Basic + DA only) at 12%, and the company pays the same. An employee can choose to contribute at a higher contribution percentage, which can go up to 20% (only from the employee's side). You can contribute at the same percentage even if your (Basic + DA) is higher, e.g., 7500/- or 10000/-.

However, your employer or company is restricted to 6500 only and at 12% only. They cannot contribute more than that even if your (Basic + DA) is higher than 6500/-.

Dear Friends,

There seems to be some confusion as the Act clearly outlines the calculation. Please refer to the following clarification about Contributions:

After the revision in the wage ceiling from Rs. 5000 to Rs. 6500 w.e.f. 1.6.2001 per month, the government will continue to contribute 1.16% up to the actual wage of a maximum of Rs. 6500 per month towards the Employees' Pension Scheme. The employer's share in the Pension Scheme will be Rs. 541 w.e.f. 1.6.2001.

Under the Employees' Deposit-Linked Insurance Scheme, the contribution @ 0.50% is required to be paid up to a maximum limit of Rs. 6500.

Additionally, the employer will also pay administrative charges @ 0.01% on the maximum limit of Rs. 6500, whereas an exempted establishment will pay inspection charges @ 0.005% on the total wages paid.

Notes:

The above clarification is provided by considering wages up to a maximum of Rs. 6500 towards the wage (basic + DA).

Even if an excluded employee, i.e., one drawing wages more than Rs. 6500, can also become a member of the Fund and the Schemes on a joint request. For instance, if such an employee is getting Rs. 10,000 per month, his share towards provident fund contribution will be Rs. 1200 (e.g., 12%), and the employer's share towards provident fund contribution will be Rs. 659, with an additional Rs. 541 towards the Employees' Pension Fund.

Regards,

PBS KUMAR

The EPF Act is applicable only to those employees who are in receipt of a salary up to Rs. 6500 per month. If an employee is hired on a salary above Rs. 6500, the EPF Act is not applicable to him or her. However, for employees who are already members of the EPF Act, and if their wages cross Rs. 6500 either during their tenure with the organization or when they are hired on a salary above Rs. 6500 but were members of the EPF scheme in their earlier organization, the current employer is obligated to deduct PF on Rs. 6500 only and not on the salary offered to them while hiring. This principle will not apply to employees who are hired for the first time on a salary above Rs. 6500 per month.

K. S. Venkatachalam Management Consultant

Dear Seniors, Please shed more light on the following point: An organization is covered under the Provident Fund. A newly joined employee is not interested in joining the PF scheme. Is it allowable? If so, under what section? If not, what should be done in this situation.

Regards, Swami

Here is the information. Please find the attachment to understand how the calculation was done.

Regards,
G.V. Pujar

I. According to Section 2(f) of EPF Scheme, an employee whose pay (Basic + DA) exceeds Rs. 6,500/- is an excluded employee. That means the employer is not liable to deduct and pay PF contribution. But if the said employee is already a member of the scheme and has not withdrawn the entire amount accumulated in his PF account, he is not an excluded employee. The employer has to include him in the scheme. In such cases, the employer should also arrange to have the accumulations in the Provident Fund account of such an employee with his previous employer transferred and credited into his account.

II. According to Para 26(6), where the monthly pay of such a member exceeds Rs. 6,500/-, the contribution payable by him, and in respect of him by the employer, shall be limited to the amounts payable on a monthly pay of Rs. 6,500/- (including DA and other allowances except HRA).

III. If an employee to whom the scheme applies wishes his PF share to be deducted at a higher rate (i.e., more than 10% of 12%), he can do so subject to the condition that the employer shall not be under an obligation to pay any contribution over and above his contribution payable under the act.

Best wishes

Subject: Re: EMPLOYEES PROVIDENT FUND - still a lot of confusion

There is no question of confusion. As per the PF scheme, the employer who is covered under the scheme should deduct contributions of employer and employee at 12% up to Basic + DA, if any, up to Rs. 6500/-. If you have a policy to deduct PF contributions on the whole amount of Basic + DA, you can continue to do so.

Ravi

Whereas you have received satisfactory clarification, I would like to add only one point. In the case of an existing employee whose basic+DA was less than Rs. 6500/- PM and was eligible for PF, on getting an increment/promotion, if his salary+DA increases more than Rs. 6500/- PM, the organization should deduct his PF up to Rs. 6500/- and need to pay the employer's contribution accordingly.

Dr. K. K. Anirudhan

Rs. 659 is not merely 3.67%. For a salary of Rs. 10,000, the employer contribution at 12% will be Rs. 1,200. However, the EPS contribution is to be restricted at 8.33% of Rs. 6,500, i.e., Rs. 541. The difference between the total contribution and the EPS contribution, i.e., 1200 - 541, is 659.

Regards,
Abbas.P.S

Subject: Re: EMPLOYEES PROVIDENT FUND - Still a lot of confusion

D.P. Jayakumar. Follow

Hi friends,

This is the correct legal position. If an employee is drawing a salary (Basic+DA) of more than Rs. 6500/- at the time of joining, he is an excluded employee, and the question of bringing him within the PF act is voluntary with the mutual consent of both the employee and the employer willing to give their contributions. There is no mandatory compulsion; but if an employee at the time of joining draws a salary of less than Rs. 6500/- (Basic+DA) and is a covered employee and subsequently due to a salary revision draws a salary of more than Rs. 6500/-(Basic+DA), he has to be compulsorily covered under PF up to Rs. 6500/- with no choice to exclude him. Contribution on salary beyond Rs. 6500/- is purely voluntary with both the employee and the employer giving their consent for their respective contributions.

Dear Ashish,
u reproduce the sec.2 (b) by which it is very clear that on which components of wages/salary have been attracted, Overtime Wages are not covered for the contribution to PF And hence ur management and of course u have to stick up to ur decision not to pay contribution on OT. LET the PF authority take action and initiate inquiry u/s.7-A; when u could submit ur statement along with provisions therein.
Regards,
KIRAN KALE