Confused About Employer's PF Contribution and Annual CTC? Need Legal Guidance!

Understanding Employer's Contribution to PF and Annual CTC

I have been facing a lot of confusion over this issue. I want to know, can the employer's contribution to the PF Fund be deducted from the Annual CTC of the employee? Is it a good practice?

In my company, this is the practice. Now, in the month of July, everyone's salary has been increased with effect from 1st Jan 2012. I was supposed to calculate the PF arrears. I have calculated it by referring to the previous year's calculation of the same. Similarly, I was also asked to deduct the Employer's contribution for PF. When I completed all the work as per the previous format, accounts are replying that I should have deducted it from the annual CTC. As per the previous format, the employer's PF contribution appears in the deduction column.

Please guide me about the correct and legal process. I am the only person handling the HR department. Please help me.

Regards,
Pallavi

Thank you for replying. It has been deducting twice, both before the calculation of the monthly gross salary and after the calculation of the Monthly Gross. Is this legal?

Regards,
Pallavi

Dear Pallavi,

Regarding Your Concern:

1. For the increment effective in July with the effective date of January 1st, 2012, you should deduct both Employee PF and Employer contributions from January 1st for PF arrears. This deduction should not be from the CTC but should be contributed by both parties.

2. It is not feasible to deduct before the gross. The breakdown should be as follows:
a. Total Earnings = Gross
b. Total Deductions
c. Grand Total = Net (take home)

Additionally, PF cannot be deducted from the Annual CTC.

If you need any clarification, please feel free to call me.

Regards,

Understanding CTC and Its Components

Simply speaking, CTC is the amount that you cost your company. That is, it is the amount that the company spends—directly or indirectly—because of employing you. Thus, it is the money given to you (your in-hand component), plus the money spent because of you.

Thank you so much for the clarification! I have done the same. I have deducted arrears PF contributions of both the employee and employer from the arrears wages. However, my accounting department is asking me to deduct the employer contribution from the revised CTC itself.

Regards,
Pallavi

Not to worry. Deductions under CTC mean Total Cost to the Company. Don't get confused. Deduct PF on Basic + DA. Also, calculate the employer's contribution to PF so it reflects in the CTC.

Thank you.

Dear Pallavi,

CTC means the cost to the company, including all the amounts incurred by the company for you. Therefore, both the employer's and employees' contributions can be deducted from the CTC. However, the company cannot deduct the employer's contribution from the employees' salary as per paragraph 31 of the Employees' Provident Fund Scheme.

Regards

Understanding CTC and Employer Contributions

CTC does contain the employer's share of PF. It is an industry practice. Cost to Company comprises components like basic salary, DA, HRA, allowances under gross salary, and other components like LTA, medical reimbursement, etc., under annual components. Additionally, the employer incurs additional expenditure on employee contributions (as a whole in respect of all employees) like PF, ESI, gratuity, health insurance, life term, etc., if any.

As these are a part of CTC, whenever revisions take place retrospectively, you can calculate and arrive at employer share pay arrears as per the Act.

CTC includes both employee and employer PF contributions. From January to July, you had already deducted PF on a regular basis. Now, you have to calculate and deduct PF (employee and employer's contribution) from arrears only.

Regards,
Kamalakar

Thank you so much for the guidance and support. I kindly request you to review the PF arrears calculation sheet attached herewith. Please inform me of the appropriate method to calculate PF arrears.

Regards,
Pallavi

We have already made the maximum contributions in our monthly returns for each employee. If an employee receives arrear payments in the month of April, do we need to contribute any amount towards the arrears? Please clarify as I was a bit confused about this.

Regards,
Laxmikanth
HR Executive