Confused About PF Deductions: Is My Employer Right to Deduct Their Contribution from My Salary?

Salary Calculation and PF Contribution Concerns

I am working in a small-scale IT company located in Chennai as an Asst. Manager-Human Resources. Here in my company, the way the salary has been calculated looks suspicious to me. When a new employee joins my company, we ask for their previous CTC and increase it by 20% to 30% before offering them a salary. For instance, if their previous CTC is 200,000, we offer them 240,000 with a 20% hike.

However, when it comes to the PF part, the actual commitment is that the employee needs to contribute 6% and the employer needs to contribute 6%. Therefore, an employee who has been offered 240,000 will have a deduction of 12% PF from their monthly salary of 20,000, with 6% (1,200) being deducted from the employee's portion and the employer contributing the other 6% (1,200), totaling 2,400 Rs every month.

So, my doubt is whether the employee will take home 18,800 or 17,600. If the employer is contributing 6% to the PF, then the total monthly package for the employee should be 20,000 + 1,200. Alternatively, can the employer deduct the 12% from the employee's 20,000 salary and provide them with 17,600 as take-home pay?

The main question is if it is an employer contribution, then why is the employer deducting the 6% from the employee's salary itself?

When I asked this question, they responded, "This is all included in your 20,000 salary, and we will deduct the employer's contribution from your salary. PF is your money, so you have to go with that. We have only committed to CTC, not take-home pay."

I am very confused. Kindly advise me on who is right.

Thanks for reading my message.

Thanks and Regards,

Vikna Prakash.S (Asst. Manager)

Dear Vikna,

Both the employer and the employee contribute 12% each for PF (not 6%). The full 12% of the employee gets deposited in the account. Out of the 12% of the employer, 8.33% gets deposited in EDLI and 6.66% in PF. Additionally, 1.67% service charges are also paid by the employer.

As per the PF Act, an organization only needs to contribute to PF up to 6500. After this amount is crossed, it is possible not to contribute. The company can structure the package where the full 24% is being paid by the employee, but normally to ensure goodwill, this is not done. Therefore, this information should be communicated to the employee to prevent any negative feelings.

Regards,
Annika

Dear All,

Your EPF contribution depends on your (Basic + DA + Cash value of food concession). Generally, the contribution is 12% for both the employee and employer, and 10% in the case of a sick industry. Out of the employer's contribution, 8.33% or a maximum of Rs 541 is contributed towards EPS, and the remaining 3.67% is paid to EPF. Additionally, 1.61% is paid by the employer for administrative charges, which include (EDLI, Admin EDLI, and Admin EPF).

The CTC of an employee includes the total amount that the employer will spend on him/her.

I hope this is clear.

Regards,
Shaikh

For salary (Basic + DA + Cash value of food concession) up to Rs 6500, EPF contribution is mandatory if your establishment is covered under the EPF Act. If it's more than Rs 6500, then it may or may not be exempted upon the mutual consent of the employee and employer.

Regards,
Shaikh

Dear Sir, if an employee's basic salary is Rs. 10,000, how can we calculate PF, and how much amount can the employer contribute to them, and how much can the employee contribute?

Dear Pawan, If you contribute Rs10,000, the breakdown is as follows:

Employee Contribution:
Rs10,000 * 12% = Rs1,200 (EPF Account)

Employer Contribution:
Rs1,000 * 8.33% (or a maximum of Rs541) = Rs833; since Rs833 exceeds Rs541, it will be considered as Rs541 (EPS Account)
Rs1,000 * 3.67% (Rs833 - Rs541) = Rs659 (EPF Account)

The same calculation applies if you contribute Rs6,500.

Regards,
Shaikh

Understanding CTC and PF Contributions

CTC means Cost to Company; it includes any expenditure incurred by the company on the employee, whether monthly or yearly.

As far as PF is concerned, both the employee and the employer have to contribute 12% of the (BASIC+DA), not 6%. For example, if you are getting Rs. 100, then (Rs. 12 + Rs. 12) totals Rs. 24. Out of this Rs. 24, the Rs. 12 from the employer can be included in your CTC.

Regards,
Naresh

Contribution of EPF Regarding

Dear All, For salary/wages (Basic + D.A), the P.F contribution is 12% each from the employee and employer. Apart from that, 1.61% charges are payable by the employer (i.e., 0.5% EdLI, 1.1% administrative charges, and 0.01% inspection charges respectively). The most important thing is that the employer's contribution should not be deducted from the employee's salary, as the provident fund is a social welfare measure provided to the employees by the Government of India.

The ceiling limit is Rs. 6,500/-.

Regards,

Understanding CTC and Its Impact on Take-Home Salary

Many of us have written about PF contributions. However, the important aspect is how CTC deceives a new recruit. In many companies, CTC includes employer contributions to PF, gratuity, leave encashment, transportation, staff welfare (tea/coffee provided in the office), and more. So, the candidate is very impressed with the big fat CTC, but what they take home is nothing but peanuts. All colleagues in HR should ensure that CTC is not used as a tool to mislead new recruits.

Regards,
Bhavan

Dear Pawan, if it's more than Rs 6500, then it's optional; you may or may not, but in mutual agreement.

Dear Bhavan, during the salary negotiation, a Salary Annexure is given to the employee, which shows all earnings, deductions, gross, CTC, net, and many more. If an employee agrees to work for peanuts, I don't think it's a fault of HR. Hope you get it and take it in a constructive way.

Regards,
Shaikh

Dear Vikana, Your CTC package is INR 240,000/-. Can your PF contribution be calculated in your CTC? First, you need to attach your entire CTC package, and then I can provide the correct answer to this question because in some organizations, both sides of PF are calculated in employees' CTC.

Regards,
Hemant
[Phone Number Removed For Privacy Reasons]
[Email Removed For Privacy Reasons]

CTC Calculation and Bonus Inclusion

Please help or guide me about the calculation of CTC. Will the bonus be a part of CTC? I am waiting for your valuable information.

With regards,
Rajnish

Clarification on Employer's Contribution to PF

Please note that the employer's contribution to PF is part of the CTC because the company is paying the contribution for the employee's savings and future financial security. Therefore, it is correct to deduct the amount of the employer's contribution to PF from the CTC package of an employee.

Thank you.

Subject: Re: Provident Fund Contribution - Important Query

Hello decentfriend11, EMPLOYEE DEPOSIT LINKED INSURANCE (EDLI) contribution is payable by the employer, calculated at 0.5% (out of 13.61%) of the employee's salary/wage (Basic + DA). This deduction should be declared in Form 6-A (Revised) in the annual return by the employer.

Hi all, really, it is a very useful discussion. I came to know that the employer should not bear the PF amount (employer contribution) for employees whose basic salary is above 6500. My doubt is, is it necessary to give PF to those persons, i.e., is it a must to deduct the PF amount from the employee's salary (employee contribution to their PF)? Then, what is the contribution of the company towards them? Is there any chance for the company or employee to skip the PF after attaining a basic salary of 6500? Please clarify it.

Please tell me what the ceiling amount is for contributing to EPF. If a person wants to deduct PF from their basic salary, i.e., ₹10,000, can they contribute to PF?

Please go through the below:

Statutory

Employees Provident Fund Organization, India (EPFO) EPF rates and calculation

The EPF & MP (Miscellaneous Provision Act) came into existence on March 14th, 1952. The act is applicable all over India except the state of Jammu and Kashmir. Presently, the following three schemes are provided to employees under this act:

1. Employee Provident Fund Scheme (EPF) 1952.
2. Employees' Pension Scheme (EPS) 1995.
3. Employees Deposit Linked Insurance (EDLIS) 1976.

An establishment with 20 or more workers should register with the Employees Provident Fund Organization, which comes under any of the 180 industries mentioned. Click here for the list of industries under EPF. Even though there are certain exemptions, they will be discussed in another post. Here, we are mainly focused on EPF rates and their calculation.

EPF, EPS, EDLIS Rates in India

EPF, EPS, and EDLIS are calculated on basic salary, dearness allowances, cash value of food concession, and retaining allowances, if any.

“Retaining allowances” means an allowance payable for the time being to an employee of any factory or other establishment during any period in which the establishment is not working, for retaining his services.

Most organizations follow the Basic + DA Method. The table below shows the rates of contribution of EPF, EPS, EDLI, and Admin charges in India.

Scheme Name | Employee Contribution | Employer Contribution | Paid to A/c No
---|---|---|---
Employee Provident Fund | 12% | 3.67% | 1
Employees' Pension Scheme | 0 | 8.33% | 10
Employees Deposit Linked Insurance | 0 | 0.5% | 21
EPF Administrative Charges | 0 | 1.1% | 2
EDLIS Administrative Charges | 0 | 0.01% | 22

Sick industries like beedi, jute, guar gum factories, coir industry other than the spinning sector

Scheme Name | Employee Contribution | Employer Contribution | Paid to A/c No
---|---|---|---
Employee Provident Fund | 10% | 1.67% | 1
Employees' Pension Scheme | 0 | 8.33% | 10
Employees Deposit Linked Insurance | 0 | 0.5% | 21
EPF Administrative Charges | 0 | 1.1% | 2
EDLIS Administrative Charges | 0 | 0.01% | 22

Inspection Charges Payable by Employer

Inspection charges must be paid by the employer in the following cases:

1. Some establishments are exempted from EDLI contribution as they provide the same nature of benefit without any contributions from the employee. Such establishments are liable to pay 0.005% on basic salary.
2. Establishments exempted under the scheme should pay 0.18% of basic salary towards inspection charges.

EPF Ceiling Limit

The EPF ceiling limit is fixed at 6500/-. The employer is liable to pay contribution only on 6500/-, whatever the basic salary is.

Calculation of Employees Provident Fund

Let us calculate the contribution of an employee who is getting a basic salary of Rs 3500/-.

Contribution Towards | Calculation | Amount
---|---|---
EPF Employees Share | 3500 x 12% | 420
EPS Employer Share | 3500 x 8.33% | 292
EPF Employer Share | 3500 x 3.67% | 128
EDLI Charges | 3500 x 0.5% | 18
EPF Admin Charges | 3500 x 1.1% | 39
EDLI Admin Charges | 3500 x 0.01% | 0.35 (round up to Rs 1/-)

The above calculation is easy and there is no complication.

Calculation of EPF for Employees Getting a Basic Salary Over and Above the Ceiling Limit 6500/-

In such cases, companies use different methods for calculation as per their payroll policy.

Consider an employee getting a basic salary of 7500/-.

We can calculate it in different ways. The only thing you should take care of is that EPS is calculated only up to 6500/-, which means the maximum amount is fixed at Rs. 541.00. The three methods mentioned below are based on the above example.

Method-1

If your company considers the total basic salary above the limit fixed at 6500.00 for PF calculation:

Contribution Towards | Calculation | Amount
---|---|---
EPF Employees Share | 7500 x 12% | 900
EPS Employer Share | 6500 x 8.33% | 541
EPF Employer Share | 7500 x 12% (-) 541 | 359
EDLI Charges | 6500 x 0.5% | 32.5
EPF Admin Charges | 6500 x 1.1% | 71.5
EDLI Admin Charges | 6500 x 0.01% | 0.65 (Round up to Rs 1/-)

I will explain how the employer contribution of EPS and EPF is calculated.

The employer decides to contribute on the total basic salary, which is 12% on 7500.00, equal to 900.00. The EPS share is fixed at 541.00. The balance (900-541) goes to the EPF account, which is 359.00. The total share is 900.00. Out of Rs 900.00, the EPS share is Rs 541/-, which is fixed for a basic salary greater than 6500/-. The balance amount is 900-541 = 359.00, which will go to the EPF account. You may be thinking, what about 3.67%? Here, you don't need to care about it.

Method-2

Some companies follow the method below, in which the employee share is calculated on 7500/- and the employer share is calculated on the upper limit of Rs 6500/-.

Contribution Towards | Calculation | Amount
---|---|---
EPF Employees Share | 7500 x 12% | 900
EPS Employer Share | 6500 x 8.33% | 541
EPF Employer Share | 6500 x 3.67% | 239
EDLI Charges | 6500 x 0.5% | 33
EPF Admin Charges | 6500 x 1.1% | 72
EDLI Admin Charges | 6500 x 0.01% | 0.65 (Round up to Rs 1/-)

Method-3

Some calculate both employer and employee shares on 6500/- despite a higher basic salary than 6500.00.

Contribution Towards | Calculation | Amount
---|---|---
EPF Employees Share | 6500 x 12% | 780
EPS Employer Share | 6500 x 8.33% | 541
EPF Employer Share | 6500 x 3.67% | 239
EDLI Charges | 6500 x 0.5% | 33
EPF Admin Charges | 6500 x 1.1% | 72
EDLI Admin Charges | 6500 x 0.01% | 0.65 (Round up to Rs 1/-)

YOU CAN DOWNLOAD AN EPF CALCULATOR IN EXCEL FORMAT HERE

Remittance of Contribution

It is the duty of the employer to remit the contribution deducted to the government before the 15th of the following month.

Employer Interest Liability

Employers are liable to pay 12% interest on late payment of EPF, EPS, EDLI, and Administrative charges.

Damage Liability

An employer remitting EPF, EPS, EDLI, and Admin charges late shall be liable to pay damages as a penalty ranging from 17% to 37% depending upon the delay.

I don't think the above post is complete. If you have different opinions and experiences, we can discuss them in our comment section, which will make this post complete.

In the meantime, you can subscribe to our newsletter below to stay updated with us.

Regards,
D. N. Sharma - Gurgaon HR

Dear Vikna Prakash,

This is a significant issue in your company. It appears that they are not being transparent about the salary and PF contributions. If they have promised you a 20% raise, that should be reflected in your pay, and the 12% contribution should be made by the employer as committed.

I recommend checking the PF challans to ensure that the correct amounts are being deposited. If the company is only depositing 12% instead of the required 25.61%, it is a serious violation. Similarly, if they are showing 25.61% against a lower salary to deceive authorities, it is fraudulent behavior.

I suggest writing a confidential letter to the PF commissioner and notifying the IT department and police about these discrepancies. If you need assistance, feel free to share details, and I can help take action against such practices.

Best regards,
Colonel Gahlot
Proprietor, 'TRURECRUIT'
[Phone Number Removed For Privacy Reasons]

Dear All,

PF & EPF Deduction

Employees Provident Fund Organization, India (EPFO) EPF Rates and Calculation

28 SEPTEMBER 2009 17 COMMENTS

The EPF & MP (Miscellaneous Provisions Act) came into existence on March 14th, 1952. The act is applicable all over India except the state of Jammu and Kashmir. Presently, the following three schemes are provided to employees under this act:

1. Employee Provident Fund Scheme (EPF) 1952.
2. Employees' Pension Scheme (EPS) 1995.
3. Employees Deposit Linked Insurance (EDLIS) 1976.

An establishment with 20 or more workers should register with the Employees Provident Fund Organization, which comes under any of the 180 industries mentioned. Click here for the list of industries that come under EPF. Even though there are certain exemptions, they will be discussed in another post. Here, we mainly aim to discuss EPF rates and their calculation.

EPF, EPS, EDLIS Rates in India

EPF, EPS, and EDLIS are calculated on Basic salary, dearness allowances, cash value of food concession, and retaining allowances if any.

“Retaining allowances means an allowance payable for the time being to an employee of any factory or other establishment during any period in which the establishment is not working, for retaining his services.”

Most organizations follow the Basic + DA Method. The table below tells you the rates of contribution of EPF, EPS, EDLI, and Admin charges in India.

| Scheme Name | Employee Contribution | Employer Contribution | Paid to A/c No |
|-------------|------------------------|-----------------------|----------------|
| Employee Provident Fund | 12% | 3.67% | 1 |
| Employees' Pension Scheme | 0 | 8.33% | 10 |
| Employees Deposit Linked Insurance | 0 | 0.5% | 21 |
| EPF Administrative Charges | 0 | 1.1% | 2 |
| EDLIS Administrative Charges | 0 | 0.01% | 22 |

Sick Industries like Beedi, Jute, Guar Gum Factories, Coir Industry other than Spinning Sector

| Scheme Name | Employee Contribution | Employer Contribution | Paid to A/c No |
|-------------|------------------------|-----------------------|----------------|
| Employee Provident Fund | 10% | 1.67% | 1 |
| Employees' Pension Scheme | 0 | 8.33% | 10 |
| Employees Deposit Linked Insurance | 0 | 0.5% | 21 |
| EPF Administrative Charges | 0 | 1.1% | 2 |
| EDLIS Administrative Charges | 0 | 0.01% | 22 |

Inspection Charges Payable by Employer

Inspection charges must be paid by the employer in the following cases:

1. Some establishments are exempted from EDLI contribution as they provide the same nature of benefit without any contributions from employees. Such establishments are liable to pay 0.005% on Basic salary.
2. The establishments exempted under the scheme should pay 0.18% of Basic salary towards inspection charges.

EPF Ceiling Limit

The EPF ceiling limit is fixed at 6500/-. The employer is liable to pay contributions only on 6500/-, whatever the basic salary is.

Calculation of Employees Provident Fund

Let us calculate the contribution of an employee who is getting a basic salary of Rs 3500/-.

| Contribution Towards | Calculation | Amount |
|----------------------|-------------|--------|
| EPF Employees Share | 3500 x 12% | 420 |
| EPS Employer Share | 3500 x 8.33% | 292 |
| EPF Employer Share | 3500 x 3.67% | 128 |
| EDLI Charges | 3500 x 0.5% | 18 |
| EPF Admin Charges | 3500 x 1.1% | 39 |
| EDLI Admin Charges | 3500 x 0.01% | 0.35 (round up to Rs 1/-) |

The above calculation is easy and there is no complication.

Regards,
D N Sharma (Manager - HR & Admin.) Gurgaon.

Please confirm for me how much is the minimum amount we can set for an employee's basic salary. If an employee receives minimum wages, how should we define his basic salary, and how can we calculate his PF and ESI?

Yours Sincerely,

Pawan Verma