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

Query Regarding Provident Fund (PF) Contributions

I have a query regarding PF. An organization is covered under PF, as are its employees. Some of the employees are receiving more than ₹6,500 as basic salary (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.

Regards

Dear All,

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 ₹6,500 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

EPF Contribution Guidelines

The EPF statute stipulates that the organization must pay 12% of the basic salary + DA, up to a maximum of Rs 6,500 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 6,500). 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

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 [Email Removed For Privacy Reasons].

Thanks,
Sunil Sharma

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

Option 1 - No PF

Option 2 - PF of ₹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 ₹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.

Regards,
Riyaz

Please find the attachment for your query regarding PF.

In my opinion, deductions up to $6,500 are statutory. Beyond that, the 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 an 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.

Regards

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

"Basic Wages" is defined 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:

- The cash value of any food concession.
- 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.
- 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.

The calculations will be in two phases. First, if the company wants to pay the PF for the person whose basic is more than 6,500, it can pay the full amount on whatever the basic is, or it can cap the payment to 6,500 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%. Calculate the basic (in this case, it is 6,500) for the remaining 0.61%.

Regards,
Suneel.

PF Deduction Guidelines

The PF Act states that it is mandatory to deduct PF on the basic salary up to ₹6,500 once an establishment is covered. An employee earning over and above the limit of ₹6,500 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 ₹6,500. Deduction on the full salary amount is optional and depends on the employer's will.

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.

Regards, Abbas.P.S

Dear Mr. Sohashivan and all others,

Points on Provident Fund (PF)

1. PF is payable on Basic + DA (+Food allowance - most companies do not have this allowance/facility these days).
2. Overtime (OT) does not attract PF. No authority will ask to pay PF on OT.
3. Statutorily, PF is payable on Rs. 6,500/- only. If companies are willing to pay PF on amounts exceeding Rs. 6,500/-, they can do so, but it is not mandatory.
4. However, the Employees' Pension Scheme (EPS) is payable only on Rs. 6,500/-, even if the salary exceeds this amount. This means any PF paid over and above Rs. 6,500/- will be credited to the PF account only.
5. If a company is already covering PF over and above Rs. 6,500/-, they cannot stop midway and must continue to pay PF.
6. Saswatha Banerjee has mentioned that PF is payable on OT as well. This is incorrect.
7. Sumit Bamnia - as your query is on a different subject, please write an email to me at [Email Removed For Privacy Reasons].

I hope the matter is clear.

Regards,
K. Ramachandra
Bangalore

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

Provident Fund Contribution Clarification

PF is calculated based on the standard of ₹6,500/- (Basic + DA only) at 12%, and the company pays the same. An employee can choose to contribute at a higher 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., ₹7,500/- or ₹10,000/-.

However, your employer or company is restricted to ₹6,500 only and at 12% only. They cannot contribute more than that even if your (Basic + DA) is higher than ₹6,500/-.

Dear Friends,

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

Clarification on 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 at 0.50% is required to be paid up to a maximum limit of Rs. 6500.

Additionally, the employer will also pay administrative charges at 0.01% on the maximum limit of Rs. 6500, whereas an exempted establishment will pay inspection charges at 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

EPF Act Applicability

The EPF Act is applicable only to employees who receive a salary of up to Rs. 6,500 per month. If an employee is hired on a salary above Rs. 6,500, the EPF Act does not apply to them. However, for employees who are already members of the EPF Act, if their wages exceed Rs. 6,500 either during their tenure with the organization or when they are hired on a salary above Rs. 6,500 but were members of the EPF scheme in their previous organization, the current employer is obligated to deduct PF on Rs. 6,500 only and not on the salary offered to them while hiring. This principle does not apply to employees who are hired for the first time on a salary above Rs. 6,500 per month.

Regards,
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

EPF Scheme and Excluded Employees

According to Section 2(f) of the EPF Scheme, an employee whose pay (Basic + DA) exceeds Rs. 6,500/- is considered an excluded employee. This means the employer is not liable to deduct and pay PF contributions. However, if the employee is already a member of the scheme and has not withdrawn the entire amount accumulated in their PF account, they are not an excluded employee. The employer must include them 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 their previous employer transferred and credited into their account.

Contribution Limits for Higher Pay

According to Para 26(6), where the monthly pay of such a member exceeds Rs. 6,500/-, the contribution payable by them, and in respect of them 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).

Higher Rate of PF Contribution

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

Best wishes.

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 both the 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.

Regards,
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, upon receiving an increment or promotion, if their salary + DA increases beyond Rs. 6500/- PM, the organization should deduct their PF up to Rs. 6500/- and pay the employer's contribution accordingly.

Regards,
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

Re: EMPLOYEES PROVIDENT FUND - Still a lot of confusion

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 considered an excluded employee. The question of bringing him within the PF Act is voluntary, requiring mutual consent from both the employee and the employer willing to give their contributions. There is no mandatory compulsion.

However, 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 must be compulsorily covered under PF up to Rs. 6500/-. There is 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,

You reproduced Section 2(b), which makes it very clear on which components of wages/salary contributions have been attracted. Overtime wages are not covered for the contribution to PF. Hence, your management, and of course you, should stick to your decision not to pay contributions on overtime. Let the PF authority take action and initiate an inquiry under Section 7A; you can then submit your statement along with the provisions therein.

Regards,
KIRAN KALE