Understanding EPF Contributions: How to Handle Contractor and Retired Employee Obligations?

We are covered under the EPF scheme and are regular in all compliance; I want the following clarifications:

Types of Employees

1. Regular employees: We contribute EPF as the Employer Share at 12% of full wages irrespective of the maximum ceiling of wages, i.e., Rs. 6500. For instance, if the wages of regular employees are above Rs. 6500, say Rs. 30,000, we contribute Rs. 3600 as the employees' share for our regular employees.

2. Contractor workers: In this case, are we bound (as a principal employer) to contribute EPF above Rs. 6500 (maximum ceiling) or can we contribute up to Rs. 6500 only? Is there any law that forces the employer to contribute equally to other employees?

Re-employment of Retired Employees

We re-employ our retired employees after the age of superannuation. In this case, are we bound to contribute EPF to the employees even after the age of 58 years or 60 years of superannuation?

As per your query, in PF, PF is applicable to all employees, whether they are Regular or Contract. PF will be deducted at a rate of 12% from the BASIC salary for both Employees and Employers. This is a totally Retirement Benefit Plan.

Clarification on EPF Contributions for Different Employee Categories

In respect of employees engaged through a contractor, you can restrict your (employer's) share to 12% of Rs 6500, even though for regular employees your practice is to contribute without considering any ceiling. If the superannuated employees are receiving the Provident Fund Pension, you can exclude them from PF contribution. Otherwise, you have to contribute to PF, and the entire employer's share of 12% shall be remitted into the Provident Fund account rather than splitting it as 8.33% in the Pension Fund and the remaining 3.67% in the Provident Fund.

Regards,
Madhu.T.K

Thank you for your message. Below are the corrections to the content you provided:

- PF is applicable to all employees, irrespective of permanent or contract status.
- It is restricted to 12% of Rs. 6500/-, meaning if it is less than 6500, the PF deduction will be based on that amount; if it exceeds 6500, the deduction will be limited to 6500.
- However, in practice, this is considered a social security benefit, so typically PF is calculated on the entire Basic plus DA.
- The PF contribution consists of two parts: 8.33% towards PF and the remaining 3.67% towards the Pension fund.
- For employees who have not reached the age of superannuation, both benefits apply. For those hired on a contract basis and retired, as well as those above the superannuation age, only the PF portion of 12% is provided. While there is no legal obligation to extend PF to these individuals, some companies choose to offer this benefit as a goodwill gesture.
- Regardless of the scenario, the management's portion of 12% is mandatory.

I hope this clarifies the information provided. If you have any further questions, feel free to reach out.

Best regards,
Dr. Nagaraj
[Email Removed For Privacy Reasons]

I feel you are already following the advice given by Mr. Madhu T K. He has provided the right opinion based on real knowledge and experience. Simply ignore the views of others; they do not deserve any attention since their views are based on 'no knowledge' or 'half knowledge'.

Hi Gurus, I have a related question here. I was also an employee in a company where our basic salary was higher than ₹6,500 per month. Both the employer and we (employees) would contribute to PF (and related FPF) contributions on the full basic salary.

PF Deduction Proportion

What proportion of the PF deduction would be allocated to FPF? Will it be 1.67% or 3.67% as mentioned here in one of the contributions?

Ceiling on FPF Contribution

One more related question - Is there a ceiling on the amount of contribution towards FPF? At an earlier point (I believe) the ceiling was some ₹429 per month. Is this correct? I did a rough calculation and ₹429 works out to be 1.67% of some ₹25,600 as basic.

If these calculations are correct, then under new FPF calculation rules, the employee should be getting their pension calculations based on the full basic salary - when the PF and FPF deductions are based on the full basic salary.

Can someone help to clear this?

Thanks and Regards,
Shashank

Family Pension Scheme and Provident Fund Pension Scheme

The Family Pension Scheme ceased to exist with the introduction of the Provident Fund Pension Scheme in 1995. In the past, when the contribution was 10%, the FPF contribution was 1.67%.

There is no compulsion that the contribution should be restricted to Rs. 6500, but if the company is willing to contribute a higher amount, such as the gross or total of basic and DA, it can do so.

Regards,
Madhu.T.K

I disagree with the view of Mr. Nagraj when he says, "it is restricted to 12% on Rs. 6500/- that means if it is less than 6500, the PF to be cut for that amount, if it is more than 6500, then restrict it for only 6500."

Clarification on PF Contribution

The PF Act very clearly states that the employer and the employee will contribute a matching sum (12% of the Basic+DA) - irrespective of the amount. Please see the attachment.

I agree with T K Madhu.

Regards,
Rajusiachen

Yes, you can withdraw fully. The amount contributed to the Pension Scheme will be added to your EPF since you are not eligible for the pension (see the pension eligibility). Please note that premature withdrawals attract Income Tax.

Regards, Rajusiachen

Dear all concerned,

In any P.F. covered establishment, the EPF Act prescribes the wage (plus D.A.) limit of Rs. 6,500/- up to which it is mandatory to cover an employee under the EPF Scheme and to contribute EPF contribution at 12% of Basic plus D.A. The employer can cover and contribute on a higher Basic Pay (plus DA), and similarly, an employee can contribute on their full Basic Pay which may exceed Rs. 6,500/-. However, it is not binding on the employer to pay matching contributions in such cases.

Furthermore, a retired but re-employed employee who has already settled their account with the EPFO can be excluded from coverage irrespective of their Basic Pay. On the other hand, a retired employee from any organization not previously a member of the EPF scheme shall have to be enrolled as a member of the EPF Scheme as per their wage admissibility. The contribution of EPS (EDLI wage limit is also Rs. 6,500/-) is restricted to a maximum of 8.33% of Rs. 6,500/- irrespective of PF wages, and the entire amount goes to EPF once an employee completes 58 years of age.

Regards,
S.C. Verma

Dear Shashank Ji,

If I have correctly followed your query, here is the answer to it. The former Family Pension Scheme, 1971 has been replaced by the Employees' Pension Scheme, 1995 with effect from 16-11-1995. When the pay ceiling was Rs. 5000, the maximum EPS contribution was 5000x8.33% = 417. After the revision of the ceiling from 5000 to 6500, it is now 6500x8.33% = Rs. 541. The maximum EPS subscription at present is Rs. 541.

Dear Sri Shyam Agrawal,

You are the first person who really understood at least part of my question. Thanks for the same. Actually, my question is also much more than what part of the contribution would go to EPF as it is called now.

As per the new rules of PF and EPF, if the employer and employee are willing to contribute 12% (the part that the employer pays for PF and FPF components may be different), then PF deduction and PF contribution can very well be done on the full basic (+DA) salary. This is what I (and my employer) have been doing all along.

According to the new EPF rules, pension calculation should be done at the rate of the last actual basic salary that was used to calculate the PF contribution. In this respect, the ceiling of Rs. 6500 does not really apply.

My PF contribution has always been on the full basic salary - regardless of the ceiling in effect at the time. Hence, the last basic and PF contribution has been on the basis of Rs. 56,000 as my basic salary.

For this reason, I also expect that the Pension calculation should be done on the basis of a basic salary of Rs. 56,000. I just wanted to confirm this. But no one seems to understand or relate to this. Can you please get me some confirmation?

Thanks and regards,

Shashank

Dear Shri Shashank Ji, irrespective of your salary, the maximum contribution for the Employees' Pension Scheme, 1995 would be Rs. 541 only. For a higher contribution and a better pension, you would have to make special arrangements with the concerned EPFO office. I have not studied those rules in detail. Please visit the EPFO website to get the desired information from there. If you want me to study it, please do write. I would be glad to do it.

Thanks and regards

Clarification on EDLI Charges

Please let me know the details of EDLI charges. Are they based on the Basic Salary or EPS Salary of Rs. 6500/-? If there is any proof or notification available, kindly provide me with the same. Your assistance is greatly appreciated. This is urgent.

Regards,
Siva

Wage Ceiling Limit for PF Contribution

If we make any kind of wage ceiling limit on the contribution for PF, is it the right practice, or can it be done? Please suggest to me.

Dear Nitesh Ji, Whatever changes you make for your employees should not be in contravention of the Employees' Provident Fund Act, 1952, or the Employees' Pension Scheme, 1995. You can always provide higher benefits to the employees than those prescribed under the law, no problem at all. However, you cannot restrict the benefits given by the statute. Keeping this in mind, you may make suitable changes in your firm for your employees.

Example of Gratuity Ceiling

I may elaborate on this by quoting one example. The ceiling on gratuity under the Payment of Gratuity is Rs. 10,00,000 (Rs. ten lakh). You may exceed this ceiling and pay more gratuity to your employees, but any amount over and above Rs. 10 lakh would be taxable income in the hands of the employee or his legal heirs. You would have to deduct income tax at source and remit it to the income tax department on the amount exceeding this ceiling.

Family Pension Contributions

For family pension, you can remit only 8.33% of the pay of the employee and not more than that, subject to Rs. 541 maximum per month. If you want to provide more pension benefits to your employees, you will have to make special arrangements with the concerned EPFO office with their prior approval.

Regards,

Pension Scheme Implementation Query

There was no Pension Scheme implemented in our department. Our organization is covered under the EPF scheme. With effect from 1.1.2006, the New Pension Scheme has come into existence. Is it mandatory to implement the New Pension Scheme when we are already depositing EPF for our employees? If yes, then what about EPF and Gratuity?

Please advise us if it is mandatory to deposit contributions in NPS for employees who joined after 1-1-2006 and discontinue the contribution to EPF. Is it allowed by EPF?

Regards