Understanding EPF Salary Components: Is PF Applicable to All Allowances?

Dear Siva,

Regarding the salary structure for EPF with the applicable act, please provide details for the salary components such as Basic, DA, HRA, and other allowances. Kindly confirm if PF is applicable for other allowances as well, by indicating 'Yes' or 'No'.

Looking forward to receiving the necessary information.

Best regards

Hi Siva,

According to the EPF Act, PF is deducted on Basic and DA only, not on HRA or other allowances.

The contents of the salary break-up are as follows. You can prepare it according to your own preferences. HRA should be 50% or 60% of the basic.

- Basic
- HRA
- TA
- Other Allowance
- Mobile Reimbursement per month
- Gross Per Month: Sum of all the above
- Gross Per Annum: 12 * Gross/Month
- PF Contribution: 12% of Basic/Annum
- ESI Contribution: 4.75% of Gross/Annum
- Medical: The mediclaim facility is provided to employees who are not covered under ESI, as the maximum ceiling for ESI is 10000/month. Amounts exceeding this will be covered under Mediclaim or based on company policy.
- Ex-Gratia/Bonus: Fixed amount as Bonus
- Annual Fixed Gross Cost: Gross/Annum + Ex-Gratia
- Annual Total Cost: AFGC + PF + ESIC
- Annual total cost is also referred to as CTC.

I hope this clarifies things for you. Feel free to ask if you have any queries.

Regards,
Amit Seth

Hi Amit,

I need help with redesigning our company salary structure. I would be interested in some freelance work to help me design the salary structure.

Thanks,
Shahida

Hi AMIT,

With reference to your reply, I am requesting you to share your ideas about the following:

1. What is the difference between MEDICLAIM and MEDICAL Reimbursement, and who is eligible for Medical reimbursement?
2. What is the difference between Bonus and Ex gratia?

Thanks,
Sandeep

Hi Sandeep,

Medical Reimbursement and Mediclaim are two different things.

Mediclaim reimbursement is the amount that most companies pay to employees, and that is included in the CTC. It is paid after producing a bill of the same. 1250 per month is the limit that is exempted from tax. Generally, companies pay it quarterly. This facility is extended to employees covered under tax slabs.

On the other hand, Mediclaim is the facility provided to employees in the form of a Mediclaim Card or Health Card. This is offered by many insurance companies for a fixed premium payment for a year. The insurance amount is also included in the CTC.

Bonus is the amount paid to employees after the calculation of profits, while Ex-Gratia is a fixed amount paid at the time of Diwali on a pro-rata basis. It is also included in the CTC.

I hope this clarifies things for you.

Regards,
Amit Seth.

Dear Friends,

In this Employee Provident Fund, I may need some clarification. As per our concern, the employer clearly informed them about your salary and CTC. In this case, while deducting EPF from the employee's salary, the employee has to contribute 12%. What about the employer? The employer is not ready to bear the amount. Do I need to deduct it from the employee's salary? Kindly assist me if anyone knows.

Thanks & Regards, N.K

Dear Anu,

You are very correct. It is 1.75% for the employee and 4.75% for the employer. When we calculate the Cost to Company (CTC) of an employee, we need to consider the total cost to the employer over an employee. That's why the 4.75% is added to the CTC. I hope this clarifies your query.

Regards,
Amit Seth

Dear Sandeep,

I was just following the string to pop in... Your query is answered thus:

Medical Reimbursement vs Mediclaim:

Reimbursement is provided to employees to defray medical expenses incurred by them for hospitalization and domiciliary treatment for self and family (as per Company policy). Bills are to be produced by the employee to claim the money in cash/cheque/deposit in the salary account subject to the prescribed ceiling. Claims above Rs 1250/- (i.e., 15,000/- per annum) become taxable under Income Tax law. It is paid each month by most Companies. Some expenses like cosmetic treatment/surgery, fancy implants, braces, etc., may be excluded as per policy.

Mediclaim:

Medical insurance covers employees. The Company can provide Group Insurance or each employee can take out their own. More coverage means a higher premium payout. Coverage can include family or just the employee themselves at their choice/Company policy. Group Insurance taken out by the Company provides better coverage with a lower premium and is better for an employee/his family. Many chronic illnesses/hereditary ailments may not be covered by the policy. Mostly covers hospitalization and domiciliary treatments.

Companies can have both for different levels of employees or one of the above for all/part of employees.

Ex-Gratia vs Bonus

Ex-gratia is a payment used mostly as a filler for a purpose, sometimes even to match a CTC expectation. It is mostly a lump-sum payment at the end of the year to compensate for a committed emolument or to support a committed reward mechanism. This is taxable in the hands of the employee.

Bonus can be of many types: performance bonus, attendance/retention bonus, profit bonus, target bonus, contract bonus, etc., or statutory bonus. Statutory bonus (ranging between 8.33% - 20%) is payable by law (as per the Payment of Bonus Act, 1965) either upon the Company having completed 5 years of operations or achieving profits (based on allocable/available surplus and year-on set-on/set-off as per the Act). Other bonuses are as decided by the management and as per the policy in the Company.

Hope this gives some basic clarifications.

Regards,

Rahul Kumar

Salary Structure

Salary structure for EPF with applicable act. Salary for basic, DA, HRA, and other allowances. If PF applicable, other allowance? Yes/No. Please send details.

Regards, N. Suresh Kumar