Navigating PF Deductions: Is Coverage Mandatory and Legal for High Earners?

Dear All,

I have two queries:

1. **Compulsory PF Coverage:** Is it compulsory to cover a person under PF if he was covered under PF in his last organization?

2. **PF Coverage for Higher Salaries:** What if the basic salary is more than 6500 and a person wants to be covered under PF? (Rs. 780 is contributed by the employer's side, and the rest amount is contributed by the employee's part) - is it legal?

Regards,

Opting Out of the PF Scheme

1. An employee whose Basic + DA is more than Rs. 6500 at the time of joining a new company can opt out of the PF Scheme even if they were covered under PF in the previous company.

PF Contribution Limits

2. If the Basic + DA is more than Rs. 6500, then the company can set a limit to deduct the PF contribution to Rs. 6500/-, which is Rs. 780. Hence, the employee would contribute Rs. 780, and the employer would contribute Rs. 780 along with administration charges of 1.61%. Please note that the employee and the employer have the option to deduct the PF contribution on the total Basic + DA. However, they can limit the contribution to Rs. 6500/- as per the law.

If the basic salary plus DA is less than 6500 and the employee was covered under PF in their last organization, is it compulsory for the new employer to provide PF even if the candidate does not want it?

If the Basic + DA in the previous company is less than Rs. 6500/- and PF is contributed, there can be two possibilities in the salary offered by the new company:

1. Basic + DA Less Than Rs. 6500/-
- PF is compulsory, irrespective of whether the employee was covered in the PF scheme in the previous organization.

2. Basic + DA More Than Rs. 6500/-
- Employee and Employer can come to any of the following conclusions:

a. Employee can opt not to get covered under PF. Hence, no PF contribution from the employee and employer end.

b. Employer can set a limit of Rs. 6500/- and can contribute PF on that, which comes to Rs. 780/-. Hence, Employee and Employer share Rs. 780/- each. Additional admin charges to the employer are 1.61%.

c. Employee can wish to contribute on the whole Basic + DA offered irrespective of the amount. For example, if Rs. 8000 is Basic + DA, the employee contribution would be 12% of Rs. 8000 = Rs. 960. However, the employer can set the limitation of contributing on Rs. 6500/-. Hence, the employer contribution would be Rs. 780. Additional admin charges to the employer are 1.61%.

d. Employee and Employer both can contribute to the whole Basic + DA amount. For example, if Rs. 8000 is Basic + DA, the Employee and Employer share would be Rs. 960 each. Additional admin charges to the employer are 1.61%.

Hope this resolves your query. Please feel free to call me at [Phone Number Removed For Privacy Reasons] for any discussion.

I read your comments and am impressed with the knowledge you shared. I need a few clarifications on the doubts below; please help me:

1. What if some employees want to have the limit of PF contribution set to Rs 6500, and some want it based on total BA+DA? Since our system does not allow both configurations simultaneously.

2. If my company opens a new entity where all employees have more than Rs 6500 as BA and DA, is it compulsory for them to enroll in PF?

Thank you in advance.

Regards,
Sunil

I think you are making some conceptual mistakes in your reply. With due respect to you, madam, I draw your kind attention to Paragraph 2(f) of the EPF scheme, which defines an excluded employee as an employee whose pay, at the time he is otherwise entitled to become a member of the Fund, exceeds Rs. 6,500 per month.

Please note that once a person is a member of PF, he is a member of PF for life in this service if the Act is applicable to his establishment.

Contribution Details Under the EPF Act

Now, Section 6 of the Act says that the contribution which shall be paid by the employer to the Fund shall be 12 percent of the basic wages, dearness allowance, and retaining allowance (if any) for the time being payable to each of the employees, whether employed by him directly or by or through a contractor. The employees' contribution shall be equal to the contribution payable by the employer in respect of him and may, if any employee so desires, be an amount exceeding 12 percent of his basic wages, dearness allowance, and retaining allowance (if any), subject to the condition that the employer shall not be under an obligation to pay any contribution over and above his contribution payable under this section.

This means a member can contribute voluntarily to the provident fund an amount exceeding 12% of his total monthly basic pay and dearness allowance. However, in this case, the contribution by the employer is restricted to 12 percent only.

I hope I am not making any mistakes.

Thanks and regards,

Keshav Korgaonkar

I want to know how much EPF is deducted if my salary is 14000 (BASIC=8500+D.A.=850+CONVEYANCE=800+HRA=3400+WASHI NG ALLOWANCE=450).

Thank you.