Understanding PF Contribution: How to Set the Minimum Basic Salary to Avoid Issues?

Determining Minimum Basic for PF Contribution

Is there any rule to determine the minimum basic for PF contribution under the PF Act? What rule specifies this? If an employee has a gross salary of Rs. 15,000 per month, what should be the minimum basic so that the PF authority does not object during inspection?

Regards,

There is no rule for the breakup of Gross salary under the EPF & MP Act 1952. The breakup of Gross salary will depend on your company policy. How will your company do the breakup of Gross salary?

As per the breakup of Gross salary, if Basic is up to Rs. 6500/-, then you should deduct PF. If Basic is above Rs. 6500/-, then it will depend upon your company whether they want to deduct or not. If the company wants to deduct on the full basic, then they can deduct on the full basic, or they can deduct up to Rs. 6500/-.

Hope your doubt should be clear by the above explanation.

Regards,
Sunil Sharma

Thank you for the detailed reply. It means that to avoid the PF, we can keep the basic salary at more than ₹6,500/-. Please correct me if I am wrong, as most companies do not want to pay PF contributions.

Thanks & Best Regards,
Ruby Sharma

You are correct. If you don't want to deduct PF, then you should keep the basic salary more than Rs. 6500/- to avoid PF liability from the employer.

Regards,
Sunil Sharma V3S Group

I think even if the basic + VDA crosses Rs. 6500, we need not cover it under EPF because we are being asked to pay PF on both basic and VDA. So, if both put together cross 6500, I think we may stop covering under EPF.

The basic salary shall be fixed by the company. The P.F. authorities will have nothing to do with it. They won't question anything about the basic salary. They will ensure whether the company is following the Act and Rules or not. The maximum salary for P.F. deduction is Rs. 6,500 as per the Act. However, the management can contribute more if there is any understanding with the union and the management. There is no restriction.

Regards,
D. Gurumurthy LL. HR & IR Consultant

No, Ruby,

If anyone is a member of PF, meaning if they have contributed to PF, you cannot stop their PF even if their basic + DA + VDA exceeds Rs. 6500. You must deduct up to Rs. 6500.00; it is mandatory as per the law. In Rajasthan, the minimum PF wage is Rs. 3510.00 as per the latest amendment by the labor department. You may check with your labor department if there is any provision for a minimum PF wage.

Sunil

I got confused because yesterday I was discussing with someone, and he told me that if the salary of any employee increases within 1 or 2 years, or maybe in 2 or 3 months, and their basic is more than Rs. 6500/-, then they can stop paying the PF contribution as the PF liability is up to basic + DA Rs. 6500/- (after mutual understanding). We can show their details in resigned employees and then continue their employment record. Can we proceed like that? Please advise.

Can you provide details regarding the minimum basic for PF? If the minimum wage is 4500, is it possible to deduct PF at 2200 and show the rest of the amount in HRA? Please arrange to explain.

Regards,
D K Rai

I am hiring a front office executive for my company. Her previous basic salary was ₹11,000/-. Now, to align with our company's level and grade, I am offering her a basic salary of ₹9,000/-. She has no issues with this adjustment.

I would like to confirm if this change is permissible by law.

Regards,
Sapna

Dear Rai, I think you have not seen the circular issued by PF authorities in which they clearly mentioned that any employer can't split minimum wages to reduce the PF liability, so there is no need to be confused. If minimum wages are less than the PF limit, then you should deduct PF on the actual minimum wages.

Regards, Sunil Sharma

It is mandatory to deduct PF for every employee who has been a PF member once. Although the employer can contribute up to Rs. 6500/- basic only, if the salary is more than Rs. 6500/-, the employer cannot stop PF deductions from the employees. They have to deposit on the account of the employee the PF on the original basic and on the part of the employer up to Rs. 6500/-.

Thank you.

Dear Naresh,

Yes, there is a rule for the minimum basic for PF contribution. The minimum basic should not be less than the minimum wages of the state, which usually comprises basic + DA. This is revised from time to time by the state government. As for bifurcation, you can follow these formulas:

- **Basic:** 50%-60% of the gross salary
- **HRA:** 40% of the basic salary
- **Conveyance:** Rs. 800/- (non-taxable)
- **Edu. Cess:** Rs. 200/- (non-taxable)
- **Med. Allowances:** Rs. 1200/- (non-taxable)

The rest should be absorbed with other allowances. However, keep in mind that the basic should not be less than the prescribed minimum wages of the state.

Thanks & Regards,

Sumit Kumar Saxena
[Phone Number Removed For Privacy Reasons]