Is It Legal to Make PF Optional in Small Companies? Seeking Clarity on HR Practices

Hi all,

Though I am not an HR person, I am currently handling HR tasks as we are a very small organization with 16 members. Whenever I have any HR queries, I seek support from this site. As per my understanding, PF is mandatory in all organizations. However, recently I have come across some offer letters from IT companies where they categorize PF under collective benefits plans and make it optional to potentially offer a better package to their employees. Is this practice correct? Can we do the same? Are there any amendments in PF rules that allow this?

Thank you all in advance for any assistance.

Regards,
Chaya

Hi,

PF is not optional. Once a company reaches a headcount of 20, it becomes mandatory. The Provident Fund squad regularly visits companies to ensure they are following the correct Provident Fund practices. Whenever they identify incorrect practices, companies are given a notice. If no action is taken, fines are levied on such companies.

Hope this information is helpful.

Sneha

Dear Chaya,

Though I am not an HR person, I am currently handling the HR tasks in our small organization of 16 members. Whenever I have HR queries, I seek support from this site.

To the best of my knowledge, Provident Fund (PF) is mandatory in all organizations. However, I have recently come across some offer letters from IT companies where they place PF under a collective basket of 'Benefit Plans' and make it optional to offer better packages to their employees. Is this practice correct? Can we do the same? Are there any amendments in PF rules?

Thank you all in anticipation of your help.

Regards,
Chaya.

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Dear Chaya,

P.F. is not optional. If the number of employees in an establishment reaches 20, it is mandatory for the establishment to cover its organization and apply to the concerned RPFC for the allotment of an E.P.F. code within 15 days of reaching 20 headcounts.

The monthly contributions deducted from the employees' salaries, along with the employers' contributions, must be remitted within 15 days of the close of every month. Additionally, a monthly return in Form 5, Form 10, and Form 12A must be submitted to the RPFC within 25 days of the following month.

Similarly, an annual return in Form 3A and Form 6A must also be submitted. All the aforementioned forms are available on the EPFO site or in the market.

For any queries, you can contact me via email at mak007hr@rediffmail.com.

Thank you,

Mohd. Arif Khan

Hi Sneha and Mr. M. Arif Khan,

Thank you very much for the useful information provided. However, I still have a question wandering in my mind. How are some of these companies offering PF as an option? Is there any provision to take special permission for this, or if not, then how are they managing it?

Thanks and Regards,
Chaya

Let's take the example of a new joiner:
The employee's basic is above 6.5k, and he was not a part of PF in his previous company. In this case, the employee enjoys the discretion of not being a part of PF in your company. (Note: it is the employee and not the employer who has the discretion).
If an employee wants to avail of PF, then both the contributions figure among his CTC.

Surya

Hi Surya,

Thank you for the reply. However, in that case, what happens about the PF rules? Is the employer not taking any risk by not following the PF statute? Won't there be any problems at a later stage during inspection?

Thanks and Regards,
Chaya

Hi Chaya,

I am Rajendra, working in an MNC with around 200 people in my company. I am handling this issue with a consultant. As per my knowledge, PF deduction is mandatory from the date of appointment in any limited or private limited company. You have asked for optional things that start with the person who is getting a basic salary of more than 6500/- per month. The total contribution of the employer generally ends here, i.e., 780/-, after which it is optional.

If you have any queries regarding the same, feel free to contact me at [Login to view].

Thanks & Regards,
Rajendra

Let's take a practical example:

The employee count of the company is 700. The profile is garment export in Okhla. The salary of the employees in question ranges from 20k to 50k, with basics varying from 6.5k to 17k. More than 30 people who were not members of PF in the previous organization have chosen to stay away from PF. From an investment or social security point of view, there are several options available better than PF.

Surya

Hello Chaya,

Sorry for the delayed response. There is no special rule to accommodate any exceptions in the case of EPF. Any company, private or public, if it reaches a headcount of 20, must enroll in PF. This number also includes direct and contract employees.

If a company does not have 20 employees on its payroll (including direct and contract), it still has the option of participating in PF, though it is purely a management decision. A company with over 20 employees that offers an option of PF is certainly taking a risk. It is against the law not to provide PF.

Sneha

Hi Sneha,

Thank you for the guidance. Actually, the matter is one of the directors is insisting on not having PF. His thoughts are also correct as he says:

- We can find other avenues that provide better returns and tax-free returns (e.g., choose to part-pay housing loan principal).
- Take-home salary will be more than the previous company, and the employee will feel happy at the end of the day (employee + employer will give an additional 25% take-home).
- The forced savings will make people very happy when they leave their job rather than when they are with the organization.
- Employees should be given the option to choose to manage their own money rather than dealing with the PF organization.
- It is recommended for people who can't manage their personal finances and for freshers.

Hence, it is better to make no PF if the basic is more than 6500 and optional for those who want PF. Do you have any suggestions that comply with the law? Please let me know.

Regards,
Chaya

Members, please refrain from giving legal advice with your half-baked knowledge of relevant provisions of the law.

Employees, with a basic pay exceeding Rs. 6,500 per month, have the discretion of not joining the EPF Scheme. Even if they opt to join the scheme, the employer's liability is limited to what is payable in the case of an employee drawing a pay of Rs. 6,500 per month.

If any member has a conflicting opinion on this, kindly quote the rules on which the opinion is based when responding, and not merely because of a practice followed by their company. All relevant rules are available on the internet, and a Google search will provide you with complete information on the subject.

If the basic salary is more than 6500, it is not compulsory to stop immediately. You need to continue for at least six months once you include the employee's name in the PF. I hope this is enough information.

Hi Chaya,

As per your statement, for your company, PF is not mandatory. Once the total headcount of the company reaches 20, it is mandatory to register for EPF Code. If not, you can opt for a voluntary code. If the company has a PF code, then:
1) All the employees whose Basic is less than 6500/- are mandatory for contribution.
2) If the employee's Basic is above 6500/-, then it is optional for the employees to contribute or not.
3) If the Basic of the employees is above 6500/-, and the employee wants to contribute to PF, then the company should not object to the contribution.

Jeeva
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