Provident Fund Confusion: Do Contract Workers Earning Over Rs. 6,501 Need PF Contributions?

Is there any new provision or circular issued by the PF Commissioner, whereby you need not pay PF contribution for employees who are employed through a contract and are paid a consolidated salary amounting to Rs. 6,501 or more? Please clarify.

Regards,
SC

Hi,

There is no new provision regarding the payment of PF contribution for contract employees whose salary is Rs. 6501.00. Under Para 26 of the Employees' Provident Fund & Miscellaneous Provisions Act, 1952, and the rules framed therein, it is clearly mentioned that:

1. Every employee who joins an organization is required to become a member of the Employees' Provident Fund Scheme, Employees' Pension Scheme, and Employees' Deposit Linked Insurance Scheme, subject to the condition that his/her salary/wages should not exceed Rs. 6500.00 per month.

2. Under Section 2, an employee is defined as a person employed for wages in or in connection with the work of an establishment, whether directly or through a contractor.

3. From the above, two points are very clear:
a. To become a member of the statutory scheme, salary/wages as defined under the act and scheme should not be more than Rs. 6500.00 per month. However, there is further clarification that if an employee, who is already a member, sees an increase in wages beyond Rs. 6500.00 within the same organization or joins a new organization with wages exceeding Rs. 6500.00 per month, they shall remain a member until they withdraw the benefits and start afresh for the purposes of EPF. Upon joining, every employee has to sign a declaration of past employment and membership of EPF on Form No. 11, as prescribed under the act, declaring whether they were a member of the scheme, withdrew the benefits provided, or not.
b. A person employed through a contractor or employed on a contract falls under the definition of an employee.

4. The main point here is that if an organization intentionally sets a person's salary beyond Rs. 6500.00 per month with the intention of not providing the benefits under the statutory scheme, the statutory authorities may object. If salary bifurcation applies to all employees and the majority are on a regular basis rather than contractual, the authority, before initiating legal action, always informs the company of their intentions.

I hope the above is clear and will help you sort things out. To achieve proper implementation of any law, its objective should be realized. In this case, the objective is social security. Make decisions based on the above information.

Regards,
Anil Anand

Dear Mr. Anand,

All employees, irrespective of their Basic Amount, must be given PF. As far as I know, any employee whose basic exceeds 6500/-, the excess amount would go to EPF and not EPS, but every employee must have PF coverage. My company is saying that it is not compulsory to provide PF to employees whose Basic exceeds 6,500/- or who receive a consolidated salary exceeding 6,500/-. For example, we have recruited a GM (HR) whose basic salary is 25,000. My company is stating that we are not required to give him PF, but I believe that PF deductions must be made as per the provisions.

Please provide clarification on this matter as soon as possible.

Warm regards,
SC

Hi, I totally agree that when you are a principal employer, PF is required to be deposited. But I have one more confusion: in case we are covered under EPF act and we are employing people as consultants/advisors, do we have to deduct their PF also?

Shweta

Dear SC,

Your contentions are correct that every new joiner is to be made a member of the EPF scheme. However, you see that your management is not willing to bear the burden of PF for employees whose basic pay exceeds Rs. 6500.00. In my previous reply, I mentioned that once a person becomes a member of the statutory EPF scheme, they remain a member until they withdraw their accumulations and start fresh employment. Therefore, please make use of Form No. 11 prescribed under the EPF & MP Act, 1952.

Your management is correct to the extent that if the basic pay exceeds Rs. 6500.00 per month, EPF deductions are not to be made from the salary. These employees are covered under the act but are not eligible for membership of the scheme as per statutory provisions restricting membership up to Rs. 6500.00 per month.

Regarding the consolidated salary part, if the company is simply intending to take undue advantage of statutory provisions, that needs to be resolved. Enforcement authorities under the act simply check why certain employees are being paid a consolidated salary while another system of bifurcation is also prevalent. If the company has justifiable reasons for the above, enforcement agencies will accept the practice being adopted by the company.

EPF deduction is mandatory only if a person is already a member. Otherwise, if the per month basic pay or wages as defined under the act exceed Rs. 6500.00 per month, there is no need to deduct and deposit the contribution towards EPF.

Try to make your management aware of other benefits provided under the scheme, such as the Pension scheme and insurance. No employer can provide benefits to the extent being provided in the statutory social security scheme like EPF. I believe they are not fully aware of the benefits and want to avoid extending benefits to employees due to a misconception of delay in withdrawal by the employee or transfer of the same from one employer account to another employer account.

As an HR person, you need to make them aware of the benefits provided under the scheme and the protection to the employer in case of any mishap with an employee. Explain the benefits to your management and then enforce your contentions. I hope this will help you.

Regards,
Anil Anand

Dear Anil,

I would like to bring the following explanation for PF. The PF Act is the parent which has two offsprings: EPF and EPS. The PF Act states that an exempted employee is an employee to whom a similar scheme is applicable and the same has been approved by EPFC. Nothing more is said regarding exemption. The EPF, one of the offsprings, mentions the Rs 6500 limit. Hence, I feel that exemption cannot be decided on the basis of an EPF, just like any bordering state in India cannot redefine its international boundary, which can only be done by the Central Government. So, I feel that up to 6500, you must deposit as per provision i.e. 8.33% EPS and 3.67% EPF. The amount in excess of 6500 goes to EPF.

Please clarify if I am wrong.

Warm Regards,
SC

Dear SC,

Yes, you are right. The PF Act is the parent act better known as the Employee's Provident Fund and Miscellaneous Provisions Act, 1952. Instead of two, it provides three types of benefits:

1. EPF [Employees' Provident Fund (1952)]
2. FPS [Family Pension Scheme (1995)]
3. EDLI [Employees' Deposit Linked Insurance Scheme (1976)]

It is clearly mentioned under paragraph 26 of the scheme that every newly joined employee is required to become a member of the scheme. If the salary of a newly joined employee exceeds Rs. 6,500.00 per month, then he/she is not eligible for the membership of all the above-mentioned three components of the parent act.

Furthermore, to enroll an employee whose salary exceeds Rs. 6,500.00 per month as a member of the statutory EPF scheme, it is at the discretion of the management to extend the benefits. Such contentions of an employer are supported under the act, and the employee cannot challenge the same unless he/she declares at the time of joining the organization that he/she was never a member of the scheme or was a member of the scheme but has withdrawn the benefits.

A number of organizations are contributing on full salary/wages, while at the same time, a number of organizations are restricting contributions up to a maximum of Rs. 6,500.00 per month salary.

Regarding FPS, the contribution rate is 8.33% of salary/wages subject to a maximum of Rs. 541.00, i.e., 8.33% of Rs. 6,500.00. In this case, if the employer is contributing on a higher salary, then the balance of employer contribution exceeding Rs. 541.00 per month will be diverted towards the EPF component.

The third component is EDLI (Employees' Deposit Linked Insurance Scheme). Under this, the contributions are being paid by the employer at 0.50% of Rs. 6,500.00 or less salary on which EPF deductions are being made. Benefits under the scheme are available in case of the death of a member during service.

There is no question of a boundary. All three components are applicable to a maximum salary of Rs. 6,500.00 per month. If your employer wants to restrict the same up to that amount, there is nothing that can be termed illegal. I agree that by doing this, the employer will reduce the benefits previously provided to the employee, and there may or may not be resentment among the employees. If this situation arises, you can suggest putting the balance amount, worked out after contributing a maximum of Rs. 780.00 per month towards EPF, into the salary, thus keeping the present per-employee cost to the company unchanged.

I can understand your thinking on the above, but if the employer wants to restrict its contributions as per legal norms, no one else is authorized to challenge this right of the employer.

Benefits provided under the FPS and EDLI are restricted to a maximum salary of Rs. 6,500.00, and employees can contribute voluntarily towards EPF subject to deductions allowed from salary/wages under the Payment of Wages Act.

I hope this is quite clear.

Regards,
Anil Anand

Dear Anil,

Here, the PF office has this to say, i.e., if the employer is registered under PF, then it must give PF to all irrespective of the amount Rs. 6,500/-. The exemption is applicable only if an employee whose Basic Pay is more than Rs 6500 gives an undertaking in writing that he/she does not want to be a member of PF and no deduction and/or contribution should be made from/on his Salary relating to PF. Please clarify if I am wrong.

Regards, SC

Dear Anil and All,

My company changed its name and registered afresh under the Companies Act recently. We formed a new company with diverse functions. We have 40 employees. Pls clear my doubts....(I am sorry if I am repeating the earlier questions again...)

1) What are the various statutory contributions of the employer to the employees?

2) What are the statutory contributions of the employees for various schemes?

Regarding employers' contributions: The areas I know are:

a) ESI - entitled for employees who get less than Rs. 7500/ pm.

b) PF - entitled for those employees who get less than Rs. 6500/pm.

c) Gratuity - those employees who completed 5 years of service.

3) Bonus - (Is it applicable to my company as we registered only now?) When should we give the bonus to employees?

4) Are there any other statutory provisions which the employer has to pay?

5) What are the other statutory provisions for employee contribution?

Where should we register our names? How should we go about it? Who is the concerned person? Please guide; I don't want any legal problems to occur because of my ignorance. Who will be the best person to guide on such statutory provisions - lawyers, Income Tax people, or others?

Thank you.

Hi,

My PF application has been processed by the concerned PF office, and the cheque has been sent to my bank. The bank says it has not received the cheque, while speed post has confirmed the delivery of the same.

My first question is, in such a situation, can the cheque/payment instrument be misused? Secondly, how do I address this situation?

Thanks & regards,
Amit

I would like to know if a company has not deposited the PF contribution of its employees. Can these employees file their claims to the PF authority? If they do so, will they get the same or not. It's urgent, please reply Ravi.