Can We Offer PF Benefits to an Employee After Their First Year? Let's Discuss!

Dear All, I have a query and need your suggestion. The query is as follows: A person joined our company on 01.04.10 at a basic salary of Rs. 10,000/-, and as he is not entitled to PF since his basic salary is above Rs. 6,500/- at the time of joining. After one year of service in the company, as of 01.04.11, his basic salary was increased to Rs. 12,000/-. Now that he has completed one year, the company wants to provide him with PF benefits. My question is, can a company extend such benefits to a person after one year of service in the company or at any other point after joining? Please discuss.

Regards, DG

As per EPF conditions, when a person joins an organization and starts working, it is the sole responsibility of the employer to deduct the EPF amount from the employee's salary from the first day of employment and contribute it to the EPF commissioner's office. However, this deduction is restricted to a basic salary of ₹6,500.

In your case, after one year, you are planning to deduct the amount from the employee's basic salary and contribute it to the EPF commissioner's office. This is not possible after one year.

There is no problem if you make a resolution that all employees, irrespective of their salary, will be brought under EPF coverage. The effect of such coverage can take place from the present date and not necessarily from the date of joining of each employee. It is not possible to apply it retrospectively since it would result in a significant liability towards past PF contributions.

Regards,
Madhu.T.K

Mr. Madhu, you are right, but a huge amount of past E.P.F. liability will be imposed on the employer with the current interest, and you will also face legal problems. You will need to show all past data related to employment, which may not be possible to manipulate, such as salary records, attendance records, leave records, employment registers, and more.

So, it's better to stay calm and implement the policy on newcomers rather than existing employees. Also, ensure to have them sign a declaration form stating their unwillingness to contribute to EPF.

I do agree with Mr. Vikas Sharma, but ₹6,500 basic is not the limit of PF deduction. It's a ceiling limit, i.e., the pension fund should be calculated on ₹6,500 (max ₹541 will go to the pension fund), and the difference should go to the PF fund (Employer's contribution).

As per the PF deduction, from day one, PF has to be contributed for all except Apprentices who are covered under the Apprentice Act.

Regards,
Dinesh Adikane

It is not necessary that it should be restricted to new employees, but you can make it applicable to existing employees also, but with effect from a present date.

Regards,
Madhu.T.K

This is possible if the company gives a new joining date effective from May 2011 to existing employees, but in this case, the gratuity period will be affected. Therefore, this is not possible at all.

There is no problem with giving him PF benefits, but you will need to show his Date of Joining from May '11 and restrict his contribution to ₹6,500/- (₹780/-).

Regards,
Sanjeev

Kindly don't get confused on this issue. What Mr. Madhu has written is correct. Indian Labour Laws are benevolent in nature, and generally, there are no restrictions or ceilings on benefits; they can be better than what is stipulated by law.

Warm regards.

Thank you for your response. I also believe that Mr. Madhu is correct. In this case, PF applicability is voluntary, so it can be initiated at a later date agreed upon by both the employer and the employee. I would like to clarify one point: Can this issue be handled on a case-by-case basis, or do we need to make it applicable to all employees who exceed the ceiling?

Regards,
DG

Applicability of PF Benefits to All Employees

It is always advisable to make PF benefits applicable to all employees rather than on a case-by-case basis. In the latter scenario, there is a chance that future disagreements may arise regarding the CTC aspects, especially if some employees do not receive the employer's share of PF contributions. From the point of view of the EPF Organization, there will not be any problem since it is already an initiative by the employer, not by compulsion but by will.

Regards,
Madhu.T.K

If the basic salary is more than Rs. 6500, it is not mandatory for the employer and employee to contribute. However, upon mutual consent from both parties, contributions can be made effective from the date of mutual consent.

Mr. Madhu is correct and has explained it in the best possible way.

EPF Membership and Declaration Concerns

If the person has submitted his declaration at the time of joining in Form No. 11 under the EPF Act, he is indicating that he is not willing to become a member of the EPF. This declaration was taken on the date of joining. Why is he now approaching to become an EPF member since the date of joining?

One thing I can tell you is that it can be applicable from the present date. If it has been implemented from the date of joining, it will create many problems. All contributions will need to be deposited with interest as applicable by the act, and damages may be payable under Section 14B of the EPF Act. Therefore, if it is necessary, you may implement PF deduction with effect from the current period, not from the date of joining after one year.

Regards,
Dashrath Mishra
[Phone Number Removed For Privacy Reasons]

Hi Mr. Sapid & All, I have gone through the responses, and Mr. Madhu is right. However, I would like to summarize the response for a clear understanding:

1. PF is applicable from day one when the employee joins.
2. The Act provides an option that those whose basic + DA is above Rs. 6500/- need not be covered under PF & EPS.
3. Companies can choose to restrict paying PF if their basic + DA is above Rs. 6500/-. However, this is not mandatory.
4. Companies can extend PF benefits even if it is more than Rs. 6500/- up to the full basic + DA.
5. It is always advisable to cover employees from day one, and the option of coverage under PF should not be on a case-to-case basis. Otherwise, companies will face administrative problems.

Regards,
K. Ramachandra
Bangalore

P.F. Contribution Eligibility and Date Alignment

First of all, the company is not liable to contribute towards P.F. if the employee's basic salary is more than 6,500 p.m. If your company wants to provide the P.F. benefit to the employee, there is no problem. The company can offer the benefit to the employee. But ensure one thing: the employee's date of joining should match the contribution date of the P.F. In your records, his date of joining may be different. However, when you commence the P.F. contribution, the employee's joining date should be the contribution date.

For example:
- Date of Joining: 01-04-2010
- Date of P.F. Contribution: 01-04-2011

Ensure that the date of joining in the P.F. return is 01.04.2011.

So, there is no issue. Go ahead.

Regards,
Atul Katoch

Dear DG, please let us know the number of employees in your organization/office. If it is fewer than 20 and you are opting for voluntary coverage, the process is different. If there were more than 20 employees, then why were all the employees not covered from the day your company reached 20 employees?

Regards,
Murali

Dear Mr. DG, Please note that you can start deducting PF for the employee from the date of completion of even 1 year also. But you should assure that the employee was on probation for the said one year. Otherwise, you should remit the PF from his date of joining. 12% of the basic salary can be deducted and remitted to the PF fund. The limit for the deduction of the basic salary is up to $6500.00.

Regards,
Nidhi
HR Manager
Liberty Marketers

Provident Fund Eligibility Clarification

As per the Provident Fund Act of 1952, amended in 2006-2007, it is clear that the limit for calculation is set at a minimum of Rs. 6500/- (Basic + DA only). Since his basic salary is much above the set limit, his PF cannot be deducted as he is not eligible for the same. Matter closed.

Do not get confused between PF and ESI.

Regards,
Rashpal
HR Manager

No problem if the basic salary is Rs. 10,000 and the employee has completed one year, and the company wants to give the benefit of P.F. That's not a problem. You can mention the present date of deduction; there is no statutory problem. You can also show the actual date of joining. Statutory problems can arise only when the basic salary was less than Rs. 6,500, and you were not deducting P.F. If the basic salary is more than Rs. 6,500, you can give the benefit after one year.

Regards,
Rajiv Singh

Provident Fund Contribution Initiation

The PF contribution may be started with the current month, and a letter to the concerned Provident Fund authority may be sent, informing them of the company's intention to contribute to the Provident Fund. It should also state that this decision has the acceptance of the employees.

Regards,
Deepak

Dear all, please understand that an employee can become a member of the Employee Provident Fund (EPF) at any time if they are not already a member. In this case, the employee must submit an application along with a joint declaration from the employer to the Regional EPF Commissioner to become a member of the EPF. The Commissioner will then grant permission for the employee to join the EPF.

Thank you.

Suggestions for PF Act Application

The PF Act will apply to persons drawing up to a salary of Rs. 6,500. They have to be covered from day one, for which you don't have any choice. For others, you can take a policy decision to extend the said benefit to employees whose salary exceeds Rs. 6,500. However, you cannot:

- Put restrictions like after one year
- After probation
- On a single employee

You have to do it for all employees in that position. You can start now prospectively and not retrospectively (with some influence, you can implement it from the current year, i.e., PF year).

Instead of asking them to pay into the Public Provident Fund and reimbursing the same to the employees, this can be extended when they serve one year or after confirmation, among other conditions.

Regards,
Dr. Nagaraj

Madhu is correct. PF can be implemented for all employees (old & new) unless the ceiling limit of Rs. 6500/- and the number of employees as per the law are considered.

Regards,
Sanjeev

As per my knowledge and understanding, if an employee drawing Basic + DA is more than Rs. 6,500/- per month and the employer is not interested in covering the employee in the PF scheme, then the employer has to obtain Form No. 11. If the employee is covered under the EPF scheme by their previous employer, then we cannot deem them as an exempt employee. Hence, their PF is liable from the date of joining, subject to a minimum contribution of Rs. 780/- (12%) per month.

Regards,
Nikhil

Hi Madhu, This is possible if the company gives a new joining date, effective from May 2011, to existing employees. However, in this case, their Gratuity period will be affected, so this is not possible at all.

As Mr. Madhu has said, it is possible for existing employees as well. There is a salary limit for coverage of an employee. For your information, an employee whose salary is more than Rs 6,500/- PM, provided that they have never been a member of the PF fund or have settled their account with the PF department, can be considered.

In the present case, the employee was earning more than the coverage limit. Now, by resolution, the company can extend PF benefits to all employees, irrespective of salary. Before such a resolution, the company should do proper homework to ensure that the employee is a fresher and has never been a member of PF. They can do so from that day onward. However, during inspection, if it is found that such an employee was a previous member of PF, contributions from the day of joining, with interest, need to be deposited.

If you previously obtained consent from an employee not to deduct PF because their basic salary exceeded Rs. 6,500/-, and now the employee wishes to start their PF contribution, you can begin the deductions from today.

Provident Fund Act Coverage

As per the Provident Fund Act, employees whose pay is less than Rs. 6,500 per month are covered under the act. "Pay" includes basic wages, dearness allowance, retaining allowance, and cash value of food concession. If an employee is receiving a salary of more than Rs. 6,500, they can become a member of the P.F. with the consent of the management. The management has to incur an additional 1.61% for administrative charges, etc.

However, if an employee is a member of the P.F. in their previous organization and the new organization they join falls under the P.F. act, it is mandatory for the new organization to deduct their P.F. This is all I know.

Any comments?

Regards,
Ajay Bajaj