Are We Handling PF Contributions Correctly for Employees Earning Above 6500? Seeking Advice!

Hello Seniors, We are deducting PF contributions only for those whose salary is less than 6500/-. Both the employer and employee equally contribute to the PF. However, for those earning above 6500/-, the employer does not contribute any amount, and the employee has the option to voluntarily contribute to the PF from their salary, with the entire 24% deducted if interested.

Seeking Suggestions on PF Contribution Procedures

I have received varying opinions on this matter from different individuals. Therefore, I kindly request your suggestions on whether we are following the correct procedure or if any adjustments are needed concerning the employer's contributions and obligations towards all employees, regardless of their salary range, with regards to PF contributions.

Thanks in advance.

Regards, Sandhya.

You are not supposed to deduct anything from the employee towards the employer's contribution. It is the duty of the employer to contribute their part. Please advise the management accordingly.

Regards,
S. Sethupathy, Erode.

Hi Sandhya, I totally disagree with Sethupathy. If an employee is earning less than or equal to ₹6500 per month, they are eligible for EPF with a contribution of 12% from both the employee and the employer. Furthermore, if an employee with a salary exceeding ₹6500 per month chooses to contribute to the EPF by declaring it on Form 2 and Form 11, they are also eligible. However, in terms of the employer's contribution, the limit is defined as ₹780 per month on EPF. Any amount above this limit is considered part of management discretion.

Here is the declaration form attached.

I want to know if the basic pay of an employee is Rs. 7500/-. In this case, the employer's 12% share is Rs. 900, and the breakup should be Rs. 541 under the Pension fund (6500 x 8.33%) and the balance Rs. 359 under the provident fund (900-541), or the percentage formula 8.33% and 3.67% of Rs. 7500 should apply. Which one is the correct way?

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But till now, we have not contributed anything on behalf of the employer for the above ₹6,500 salaried employees. Shall we start anew from this assessment year? Is that possible?

Regards,
Sandhya.

One more thing: once we start the PF contribution, can we stop in between? Is there any specific period of contribution?

Regards,
Sandhya.

Both are correct. However, for the second option, you have to get consent from the concerned RPFC. Otherwise, you have to follow the first option only.

Regards,
Abbas.P.S

Provident Fund Contribution Guidelines

The company should contribute to the Provident Fund (PF) up to a salary of Rs. 6500 (Basic + DA).

If an employee has withdrawn their PF from a previous company, they become ineligible for PF in the next company.

If an employee does not have a PF account and their salary is more than Rs. 6500 (Basic + DA), they will not be eligible for PF as they are exempted from PF and EDLI as per the Act. In that case, the company should contribute to the Pension Fund, which is 8.33% of the salary (Basic + DA). However, if the company desires, it can contribute to PF, but once started, the contribution cannot be stopped.

Getting Form No. 11 filled out from new joiners is also important.

If an employee wants to contribute more, they can, but the employer should contribute up to Rs. 6500 only as it is mandatory. If the employer wishes, they can contribute more (i.e., equal to the employee's contribution).

Any employer cannot deduct employer contributions from an employee's salary; it is an offense and shall be liable for legal action.

If you have deducted employer contributions from employees' salaries, then give the amount back to employees by cheque. It will remove legal obligations, and the company will be safe from any legal action.

Kindly ensure compliance with the above guidelines.

Thank you.

But till now, we have not followed any of these above-given rules. Can we start these from this assessment year?

Regards,
Sandhya.

Dear Suhas, your post made me confused. My company is a CTC-based company, and PF deduction for all the employees is such that both the contributions (employee PF & employer PF) are deducted from the employee's salary itself. Please guide me in this matter.

Thanks, Suhas, for the wonderful explanation. Some companies offer CTC, which includes the employer's share of the PF amount as well. In such cases, there won't be any further amount given to the employee apart from the CTC offered to them at the time of joining.

Payslip Representation in CTC Including PF

In that situation, how do they show their payslips? Please give your opinion on this.

Regards,
Sandhya

As per my knowledge, if you go through the company's compensation policy, it will be easier for you to understand the exact situation. In most companies, when we calculate the gross salary (according to the Appointment Letter), the employer's contribution to PF and ESI is included in the compensation structure. If you deduct the PF and ESI contributions of the employee, then you get the exact CTC of the employee, from which you are deducting the employee's PF and ESI contributions.

Regards,
Dipak

Hi Nikhil, here I am providing you with the Provident Fund Calculation sheet. Please review it.

Regards.

In actual case, CTC is not salary, but salary is a part of CTC. CTC is the total expenses incurred by the company on a particular employee, and it includes salary, insurance premium, PF and ESIC contributions of the employer, house rent paid by the company, company vehicle, telephone, etc.

As the company pays for the employee, it becomes a cost to the company. If you are considering the PF contribution of the employer as part of CTC, then you cannot say that you are deducting it from the employee's salary. In actual case, you are paying it from the employer's pocket and not from the employee's, and it is legal.

In the payslip, the employer should show Gross salary (its Breakup: BASIC, DA, HRA, CCA, etc.)

- Amount of PF deducted (only Employee's Contribution i.e., 12% of salary (Basic+DA) maximum up to Rs. 780)
- Amount of ESIC deducted (only Employee's Contribution 1.75% of Gross salary (if gross salary <=15000))
- Amount of PT (Professional Tax) deducted
- Amount of Income tax (TDS) Deducted

Net salary = (Gross salary - (all deductions (PF+ESIC+PT+TDS)))

Thank you.

[QUOTE=suhaskhambe;1526059]
Dear Sandhya,

If any employee has withdrawn his PF from his previous company, he becomes ineligible for PF in the next company.

Dear suhaskhambe,

I am not clear about the above statement. What does it mean?

Regards,
anabayan

Dear Anabayan, if any employee withdraws the full amount of PF from his/her PF account (that is, settles his/her account), then he/she becomes ineligible for PF in the next company. As per the PF Act, an employee has to transfer his/her account to the next company by submitting Form No. 13 and not withdraw. When an employee withdraws the full amount from his/her PF account, the government assumes that he/she will not work in any company after leaving his/her current company. Form No. 11 states the facts.

I disagreed. Let me clarify this.

Suppose RAM (Hypothetical Name) is working in ABC company and receiving a salary of 6000 Rs. He is eligible for E.P.F. After 2 years, Mr. Ram switches to another job and before joining the new company, he withdraws E.P.F., clears all amounts, and accordingly, his E.P.F. account is closed.

When Mr. Ram joins a new manufacturing house, he is given a salary of 6500 Rs per month and is eligible for E.P.F. again. The employer's responsibility is to deduct the employee's part from his salary and share the employer's part. Under this condition, Mr. Ram will get a new account number from the E.P.F. department.

Moreover, if Mr. Ram's salary is more than 10000 Rs in the new company and he has opted to contribute to E.P.F., he is also eligible. However, the employer's contribution is restricted to 780 Rs per month, and the contribution part depends entirely on the employer's decision.

Yeah, it's true because I have seen people stop their PF deductions in between even though they don't shift from one company to another. They simply mention in the form that the employee has crossed the base of ₹6,500/-; hence, they would like to stop, or sometimes they say they left the company. After some time, they again start deducting the PF amount when they get a new PF account.

Regards,
Sandhya

Dear Vikasji, Yes, this is happening all over as you have stated in the case and because of the following reasons:

Reasons for PF Account Issues

The first thing is that if we (HR) don't ask the employee if they had a PF account in the previous company and what they did, we generally don't ask them (newly joined employees) to submit Form No. 11. We simply get a nomination and declaration form from that person and submit it with the allocation of a different account number to them. The PF office receives a lot of forms in a single day, so they don't bother about inquiring if the person had another PF account and if it is still active or if a withdrawal has been made. They simply accept the account number, assuming that the employer has done all the necessary inquiries.

If a person has made a withdrawal from their previous account and their next employer is willing to open a new account, then the PF office has no objection.

However, if the employer refuses to open a new PF account for the person who has made a withdrawal and closed the PF account from their previous company, then it is 100% legal (no legal obligation on the employer).

If a person's salary is not more than 6500 at the time of joining the fund for the first time, then they are eligible for PF even if their salary increases after a few days or months. The only condition is that they should transfer their PF account by submitting Form No. 13 when switching to a new company. If they withdraw and reapply in the next company, then they become an exempted employee. However, if their next employer is willing to open their new PF account, then the PF office accepts it, giving importance to the employer's will because the PF office assumes that the employer is doing it for the well-being of the employee (but there is no legal obligation on the employer in this case).

Please correct me if I am going wrong.

PF Contribution and EDLI Charges

Please suggest to me, with the PF contribution being 12% from the employee and 12% from the employer, who is responsible for contributing to the EDLI charges, EPF admin charges, and EDLI admin charges.

Regards,
Sujit

Hi Sujit, EDLI, Admin Charge, and EDLI Admin charge will be contributed by the employer. This is the employer's responsibility.

Dear Seniors, Please suggest to me if an employee completes 10 years of service and their basic salary is 5000/- per month, how much they can withdraw from the PF Office and provide some knowledge regarding EPS.

Thanks and regards,
Sujit Jena

Thank you for your advice. My full details are as follows:

I am 27 years old. My basic salary is 5000/- per month. Now I am gaining knowledge about the calculation of pension in the PF.

Regards, Sujit Jena

I work for a mid-sized software company in Chennai. I have a clarification on one of the issues that happened recently to us regarding PF.

We recently received a summons from the PF office for not paying PF appropriately and were asked to present a list of documents to them. To my knowledge, we did pay all the contributions correctly.

When we went there with the documents, they said that we are calculating the basic wrongly. For example, employees who are making 12,000 as salary and their basic is 40% (as per our company policy), which is 4,800, but the PF officer instead said that we have to make the basic as 6,500 for people whose basic is less than 6,500, and for people who are earning 6,500 or less, their entire salary should be considered as basic. They asked us to make adjustments for the past year and pay the remaining contributions. As you know, in the IT industry, half of the employees who worked last year are not present this year.

Can anyone tell me if this is the common norm that we follow? Is there any rule or notice issued for this? Or how should I approach this?

Regards,

Vasanth Raja

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