Understanding PF Calculation: How Is It Determined for Salaries Above Rs. 6500?

Understanding PF Calculation Based on Basic Salary

If an employee's basic salary is Rs. 6500, then the PF is mandatory. However, if an employee's basic salary exceeds Rs. 6500, it becomes optional and depends on the company's policy.

For example, if an employee's basic salary is Rs. 10,000, what will be the PF amount? In this case, what will be the basic amount (Rs. 6500 or Rs. 10,000) on which PF will be calculated?

Normally, PF is calculated at 12% on Basic Salary. As per the PF Act, the restriction imposed is ₹6,500, which is not an absolute restriction. An employee drawing higher wages can also opt for a deduction of PF at 12% on the basic wages above ₹6,500. There is a provision wherein an employee can also enhance his contribution to 20%; however, the employer's contribution will be restricted to 12% only.

It depends on the company's policy to fix the basic wage. The basic wage should be equal to or greater than the minimum wage as mentioned under the Schedule of Minimum Wages Act. So, if they fix the basic wage at Rs. 10,000, then they should pay the Employee Provident Fund (EPF) at a rate of 12% for Rs. 10,000.

Clarification on EPS, EDLI, and EPF Contributions

First of all, I would like to clarify that Rs. 6500/- is the ceiling for EPS and EDLI, not for EPF. The deduction of EPF is based on BASIC+DA/VDA+ Food conc. (if any). Secondly, if any of your employees have a basic salary of Rs. 10,000/- and both the employee and employer agree to the deduction, it should be on Rs. 10,000/-. However, the EPS contribution should be calculated on Rs. 6500/-. If the employer does not want to contribute on Rs. 10,000/-, they can contribute on Rs. 6500/-, but this should depend on mutual consent between the employee and employer.

Thanks and regards,

Sumit Kumar Saxena
[Phone Number Removed For Privacy Reasons]

PF and ESIC Calculation

Thank you, Mr. Sumit Kumar Saxena, for clarifying the actual basis for EPF deduction. However, various sites provide different percentages. I would appreciate it if you could please let me know the Employer's percentage share on the Basic + DA and the Employee's percentage share on the same, i.e., Basic + DA.

Similarly, could you please enlighten me on the actual basis for ESIC deduction and what exactly the Employer's percentage share would be? Also, what would the Employee's percentage share be?

I understand that the Bonus of 8.33% is calculated based on Basic + DA. Please correct me if I am wrong.

Furthermore, on what basis is Gratuity calculated? Please enlighten me. I would be very grateful.

Respectfully,
LRGA

Employer and Employee Contribution Details

Thanks for expressing interest. The employer's percentage of share will be 12% of the EPF salary, 1.1% of EPF salary, 0.5% of EDLI salary (Ceiling should be Rs. 6500/- not above), and 0.01% of EDLI/Pen.Sal (Ceiling should be the same). In total, 13.61% will be the employer's share.

The employee share should be 12% of the basic + DA. The total Challan value should be 25.61%.

ESIC Calculation

For ESIC calculation, the basic should be Employee Share - 1.75% of the Gross salary, and Employer share - 4.75% of the total salary. The wages & salary ceiling should be Rs. 15000/- pm, and contributions should also be paid on overtime/incentives except for those allowances that are reimbursed.

Bonus and Gratuity Calculation

You are right; the bonus is also calculated on basic + DA. The minimum should be 8.33%, and the maximum should be 20%, paid to those earning Rs. 10,000/- and calculated on Rs. 3500/-. The period taken for calculation should be the financial year.

Gratuity calculation is done on basic + DA, and for payment, 5 years of continuous service is required. The formula should be Last drawn salary/26*year of service*15.

Thanks & regards,

Sumit Kumar Saxena

[Phone Number Removed For Privacy Reasons]

As per the PF rules and regulations, deductions should be effected as follows:

1. PF is 12% from the employee side and 3.67% from the employer side paid into Account No.1.

2. Pension is 8.33% from the employer side paid into Account No.10. Hence, the total PF contribution deducted is 15.67%.

3. EDLI deduction is 0.50% to be paid into Account No.21.

4. EPF Admn. Charges are 1.1% to be paid into Account No.2.

5. EDLIS Admn. Charges are 0.01% to be paid into Account No.22.

The total contribution for EDLI, EPF admin charges, and EDLIS Admin charges is 1.61%.

Hope everything is clear.

Regards,
Jay Kumtekar.