Is It Fair for Employers to Deduct the Entire PF from Our Salaries? Let's Discuss!

I work in an MNC in Gurgaon. We are a company of 13 people. Earlier, we did not have a PF policy, but now our employer wants to implement it. They have decided to deduct Rs 1560 (taking 6500 as Basic for all employees, even if somebody has a higher basic - 6500/12*100=780 (780 + 780 = 1560).

Is It Justified to Deduct the Entire PF?

Now, is it justified to deduct the entire PF from your salary, i.e., the employer's share as well? I find it very wrong as they want to implement this system without changing the current CTC of all employees.

I work as an HR manager in the firm, and I do not like this system. Is there any way to oppose it?

Thank you.

As per PF rules, only the Employee's contribution of Rs. 780/-, i.e., 12% on 6500/-, has to be deducted from the Employee, and the same amount has to be contributed by the Employer. Even in this case, the Net Salary will be reduced. However, in the current CTC trend, Employers are calculating both contributions in the CTC, and they are reducing the Gross salary.

Cheers

EPF Contribution Clarification

One way it is good, as per the EPF rules, is that you can deduct ₹780 from the employee, but the employer has to pay ₹780 towards the contribution. However, most companies are deducting both contributions from the employee. After leaving the job, the employee receives ₹780 + ₹780 + Interest + Pension. Therefore, it is important to educate the employees and make decisions according to your management guidelines.

If you need more information, you may contact me at [Phone Number Removed For Privacy Reasons].

Regards,
Laxmi

There is nothing wrong with it. Employers can deduct 12% of the PF base salary as per the limit given in the Act, up to Rs. 6500. Most employers consider 12% of the PF amount in CTC, even though they actually pay 13.61% on Rs. 6500. If an employee is interested in deducting a higher amount, the Voluntary Provident Fund (VPF) option is available to the employee without any burden on the employer.

Regards,
Ravindra Chaubal
Sr. Manager - HR

To some extent, we can accept the logic of calculating the employer's share of EPF. However, nowadays employers even include gratuity, which is paid after 5 years and is entirely the employer's liability in CTC. The most affected are the employees who leave the organization for any reason on or before 5 years, and even their net pay is affected.

Steps to Eliminate Gratuity from CTC

Can anybody help me out with the steps to eliminate this?

Regards

Thank you for the clarification. However, I feel very sad that the employees who are not aware of the fact that this is reducing their net pay amount, which is not fair to the employers. Is there any way that the employees can express their views that they do not want to include in the CTC? Please do clarify.

Regards,
Narayanan

Understanding the Concept of CTC and Employee Benefits

Are you not making a budget at your home? For provisions such as a certain amount for groceries, for milk some X amount, etc. The CTC concept is the same way that an employer budgets their cash outflow. When someone is recruited, the employer wants them on a long-term basis, and no employer recruits or intends to recruit someone for only a year or two (except for specific assignments).

So, they need to plan their cash/fund flow. The law provides for them to pay for statutory benefits such as Gratuity, PF contribution, etc. When an employer actually pays the employee (for example, after the resignation of 5 years' service), they would have sourced this from the accumulation from the LIC fund or something.

There is nothing wrong in showing the components that are going to cost their exchequer as "cost to company." It is the employee's wish to work for 5 years and more to avail of the benefit. If one is money-minded or a job hopper, constantly changing jobs every 2-3 years and still expecting to be paid Gratuity (in each company) signals a different attitude.

Regards,
Balaji

I agree with Laxmi, but before implementing, you should revise the Salary Annexure of all employees, showing EPF share, etc., on a CTC basis. This way, employees will be aware of their deductions and take-home amounts.

Regards,

Understanding CTC and EPF Contributions

CTC means Cost to the Company. Any amount that forms part of the compensation to the employee will ideally be part of the CTC. The employer's component of EPF is part of the earnings of the employee and, as such, is part of the CTC. Also, the employee's contribution is part of the deductions on the salary earned.

What was happening earlier in your case was that, since there was no EPF, the entire CTC or most of it was part of the earnings, resulting in a higher in-hand salary. The implementation of EPF has reduced the in-hand component. Considering that the EPF contribution is a benefit that accrues to the employee on exit from the organization or on superannuation, it acts as a saving. So, at the end of the day, the employee will get this payment without being taxed on the entire amount if he withdraws it after 3 years.

That being said, the principle followed by many organizations is not to reduce the take-home salary of the employees. They introduce these kinds of benefits with the increments or by increasing the CTC to the extent of the additional components.

It is the duty of the HR person to give this advice to the company. As such, it was your duty to give this advice to the management. Or is it that they didn't consult you before rolling this out? There is no point in opposing it after not having spoken up at the time the decision was taken.

There is a way out, though.

Every employee whose Basic is above Rs. 6500 a month is an excluded employee for the purpose of the act. As such, without the employee's explicit request, the employee cannot be forcibly made a member under the scheme.

Kindly, for your own benefit, read up on the relevant acts.

I hope this solves your query.

Regards,
Savio

I was involved in a discussion at CiteHR with other members and came to know that EPF is applicable if your company size is larger than 20. So, it's not applicable to you in any way. Correct me if I am wrong.

Yes, it is a must. When someone freezes their position at the negotiation table, the salary components are shown to them (that is what I practice here). Questions or doubts are clarified. Once this process is over and they join the organization, it means they are educated before being inducted into the organization. We perpetuate this year after year after the performance review for the year is over by issuing a review sheet with increased salary and components. This ensures they are clear about what they are getting in hand and what is saved in PF/ESI/Gratuity Funds on their behalf.

Discussion on Changing the System of Adapting CTC

The discussion on this thread pertains to "Changing the system of adapting CTC" by an employer (as posted by Lista). My point is that there is nothing wrong with this concept, and Mr./Ms. Lista need not make any reforms to change this concept.

Regards,
Balaji