Urgent Help Needed: Is PF Deducted from Basic or Basic + DA in New Salary Structure?

Dear Seniors,

We are going to revise the salary structure as per the minimum wage policy. Please clarify whether PF is deducted from basic or Basic+DA. Secondly, will EL also be calculated on the basis of only Basic + DA?

One more thing, should Basic+DA be equal to the minimum wage, or should it be bifurcated in the minimum wage? For example, as per the UP minimum wage for unskilled workers, 2600 basic + 1563.98.

This is very urgent. Please reply to me soon.

Thanks in advance,
Ritu

Dear Ritu,

You can revise the salary structure as per the minimum wage policy, and Provident Fund is always deducted on basic wages only, not on basic + DA. For your reference, I am reproducing Section 2 (b) of the Employees Provident Fund & Miscellaneous Provisions Act, 1952:-

Section 2 (b) "Basic wages" means all emoluments earned by an employee while on duty or on leave or on holidays with wages in either case, in accordance with the terms of the contract of employment, and which are paid or payable in cash to him. However, it does not include:

(i) The cash value of any food concession;

(ii) Any dearness allowance (that is, all cash payments by whatever name called, paid to an employee on account of a rise in the cost of living), house-rent allowance, overtime allowance, bonus, commission, or other similar allowance payable to the employee in respect of his employment or work done in such employment;

(iii) Any presents made by the employer.

It is mandatory for the employer to deduct and contribute to the provident fund of every employee whose basic is Rs. 6,500/- or less. Furthermore, Earned Leave will be calculated on the Basic + DA, whether it is less than the minimum wages or more than the minimum wages. Still, the employer has to make the payment of leave encashment on basic + DA.

I hope the above clarifies your query. If you require any further clarification, you are most welcome.

Dear Ritu & Mukesh,

As far as I know, the Employees Provident Fund is not calculated on Basic salary alone. The Dearness allowance shall also be taken into consideration. The rate of EPF deducted from the employee is 12%, which will go to the EPF (Provident Fund). The employer will contribute 12%, which will be apportioned as 8.33% in the Employees Pension Fund and the balance 3.67% in EPF (along with employees' share of 12%).

In addition to this, the employer has to pay 1.1% towards Administrative charges, 0.5% towards Employees' Deposit Linked Insurance (EDLI), and 0.01% towards Administrative charges of EDLI. Administrative charges and EDLI are calculated on the Basic + DA salary and are not recoverable from the salary of employees.

Regards,

Dear Krishan,

Kindly go through Section 2(b) of the Employees' Provident Fund & Miscellaneous Provisions Act, 1952: Section 2(b) "Basic wages" means all emoluments earned by an employee while on duty or on leave, or on holidays with wages in accordance with the terms of the contract of employment and paid or payable in cash to him. However, it does not include:

(i) The cash value of any food concession;
(ii) Any dearness allowance (that is, all cash payments by whatever name called paid to an employee on account of a rise in the cost of living), house-rent allowance, overtime allowance, bonus, commission, or other similar allowances payable to the employee in respect of his employment or work done in such employment;
(iii) Any presents made by the employer.

The above contentions are supported by a judgment of the Hon'ble Punjab & Haryana High Court, wherein it categorically held that the provident fund shall be contributed only on basic wages.

Agreed with your clarification, Mr. Mukesh Azad. You're one hundred percent correct. PF will be calculated on Basic only. All the administrative charges will also be calculated from the earned basic only. Proven example judgment of the Hon'ble Punjab & Haryana High Court. I do have the judgment copy.

If my salary is $11,000 per month, how much EPF will be deducted from both the employee and employer sides?

Dear Ritu,

It is always better to take the minimum wage as the basic salary so that you won't face any problems from your local labor departments, and PF will be calculated on Basic + DA. When there is no dearness allowance, then you can calculate PF on the basic wage.

Reference: Useful Websites For HR Professionals

Thank you.

Dear Mr. Mukesh,

Kindly refer to Ch. V, Sec. 29 which states the following:

(1) The contribution payable by the employer under the Scheme shall be at the rate of 12 [twelve per cent] of the [basic wages, dearness allowance (including the cash value of any food concession) and retaining allowance (if any)] payable to each employee to whom the Scheme applies.

Hence, it is clear that PF contribution is to be made on basic + DA, not basic only.

Warm regards,
Jaspal Bhanker

PF will be calculated on Basic + DA, but in most of the private organizations, there is no DA, so they are calculating PF on only the basic salary.

PF employee contribution: 12%
PF employer contribution:
- PF: 3.67%
- Pension: 8.33%
- PF admin charges: 0.65%
- EDLI Charges: 0.5%
- EDLI Admin Charges: Nil

[My EPF Guide - Employee Provident Fund Guide](http://www.myepfguide.com/)

Dear Sir,

Section 7 states that PF should be deducted on Basic+VDA. I am confused.

Dear Colleagues,

Hope you are doing well! Please help me with your valuable advice on the below matter:

Query on PF Dues with Rs. 15,000 Limit

Q1. The query is for those employers who treat the PF dues on the basis of Rs. 15,000 limit on EPF wages and not the entire amount. In an example of such an employer, if an employee has PF wages defined as, say, Rs. 50,000 per month, and if such an employee is on Loss of Pay for 15 days out of 30 in April, what is the PF deduction and contribution?

- Is it based on the fact that since the employee is paid Rs. 25,000 for that month (15/30 x 50,000), the PF should be 12% of 15,000 (the lower of 15,000 and 25,000), i.e., Rs. 1,800 OR
- Should it be computed as PF wages are 15,000 (the lower of 50,000 and 15,000), and PF wages prorated as per LOP days are 15/30 of Rs. 1,800, i.e., Rs. 900?

Query on PF Dues with Full Amount

Q2. The query is for those employers who treat the PF dues on the basis of the entire amount. In an example of such an employer, if an employee has PF wages defined as, say, Rs. 50,000 per month, and if such an employee is on Loss of Pay for 15 days out of 30 in April, what should be the EPF wages? 50,000 or 25,000 or 15,000?

Thank you.

ESI and PF Requirements

ESI is not an option, but it is a mandatory requirement if you have employees whose salary is up to 21k. If all your 20 employees earn above 21k, then you may be excluded from ESI coverage. Check with your nearest Local Office to see if your location/area/revenue village is notified for ESI coverage. Then proceed in consultation with the ESI Corporation.

PF Coverage

In the case of PF, all employees who earn wages up to 15K should be covered under PF. The deduction for PF should be based on Basic + DA + Retaining allowance, and to reach 15K, any other allowance commonly extended to all employees should also be added.