Confused About Employer's PF Contribution? Let's Break Down the Numbers Together

Understanding Employer's Contribution to PF

I am completely confused about the employer's contribution to PF. As per my understanding, the maximum basic salary considered for the employer is ₹6,500. The contribution includes 8.33% towards EPS, 3.67% in EPF, and 1.61% as admin charges. My question is, on what amount should we calculate the 3.67% or 1.61%? For example, if the gross salary is ₹10,000 and the employee is deducting 12% of that, what would be the employer's contribution to each account?

I am feeling quite lost in this matter. Your help in clarifying this would be greatly appreciated.

Thank you.

The attached file will help you, and I hope it clears your doubt.

Regards,
Hrd4u

Even though the gross salary (basic + DA + retaining allowance, if any) of an employee is Rs. 10,000/- per month and he is a member of the P.F scheme, it is not obligatory for the employer to contribute on the wages exceeding Rs. 6,500/- per month. Thus, the employer's contribution of 12% and administrative charges can be calculated on Rs. 6,500/- per month.

Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai

Understanding PF Contributions

PF is calculated based only on the basic salary, not DA. Employee contribution is 12%.

Employer Contribution Breakdown

Employer contribution is divided into two parts:

- **3.67%**: This goes directly into the PF account of an employee.
- **8.33%**: This is allocated to the Family Pension Scheme.

In addition to the above, the employer has to pay Administrative Charges of 1.10% on the total amount of basic, i.e., 6500 and above.

Then the employer has to pay contributions for the EDLI Scheme of 0.5% and Administrative charges of 0.01% of the amount of the total basic considered for the Family Pension Scheme, which does not include the total basic amount above 6500.

Therefore, the total contribution is 12% (3.67 + 8.33) + 1.10 + 0.5 + 0.01 = 13.61% paid by the employer.

For a basic of 6000, the PF contribution by the Employer is 720 + 66 + 30 + 0.6 = 816.6.

Historical Ceiling Changes

The ceiling was 3500/- up to 01.10.94, then revised to 5000/-. It was then revised to 6500/- from 01.04.1995, and remains the same with no further amendments.

If the employee's basic wages exceed Rs. 6500/-, there is no liability on the part of the employer to pay PF contribution.

If an employee joins with less than the above basic and continues service with more than the basic of Rs. 6500/-, the employer is bound to pay PF contribution on the Rs. 6500/- only (i.e., Rs. 780/-), even though their basic salary is higher.

I hope your doubts are cleared.

Regards,
Samanta

Please let me know if the basic salary is ₹10,000. The employee contribution is ₹780, and the employer's contribution is ₹780. Additionally, there are admin and EDLI charges of ₹105. Is this information correct?

Thank you,

Mukund

Thank you for the Excel sheet. Now, I finally understand that it's not necessary for both 12% values to be equal. An employer can calculate 12% (8.33% + 3.67%) on 6500, excluding administrative charges.

Thank you.

Please find the below details for PF calculation on basic salary:

PF Contribution Breakdown

- **A/C No.1:** From Employee 12% + Employer 3.67%
- **A/C No.2:** 1.1% (it's called PF admin charges)
- **A/C No.10:** 8.33% (pension)
- **A/C No.21:** 0.5% (E.D. L.I)
- **A/C No.22:** 0.01% (EDLI admin charges)

Note: The PF Ceiling amount is Rs. 6500/-. If the Basic salary is >= Rs. 6500/-, the pension salary will be paid Rs. 541, and the remaining goes to PF i.e., A/C No.1.

Please let me know if you need any clarification on this.

Regards,
Jay

Excellent explanation. Just one simple clarification: It depends on the organization as there is no objection if the employer pays the basic salary more than Rs. 6500. Also, the PF will be deducted on the actual basic salary from the employee part 12% and employer part 12% (i.e., pension Rs. 541 and remaining PF) +1.61% (Admin charges) = 13.61%.

Regards,
Jay

Clarification on P.F. Contribution Components

Your statement that P.F. contribution is to be paid only on basic pay but not on DA is legally incorrect. I invite your attention to Sec. 6 of the P.F. Act 1952, which states that the contribution shall be payable on Basic wages + Dearness allowance + retaining allowance + cash value of food concession, if any. An employer cannot decide which components of salary shall be included for P.F. contribution when the Act unambiguously directs in this regard. However, the effort you made by way of an example to show how to compute the contribution is admirable.

Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai

Dear Ms. Haripriya,

Kindly go through the P.F. Manual. P.F. Deduction can be made on Basic + DA and not other allowances subject to a limit of Rs.6500 from the employer's side. Further, it is obligatory on the part of the employer to deduct on higher wages.

Regards,
Ravi.V

Clarification on PF Contributions

Here is your clarification on PF (please see attachment). Additionally:

- A/C No.1: From Employee 12% + Employer 3.67%
- A/C No.2: 1.1% (referred to as PF admin charges)
- A/C No.10: 8.33% (pension)
- A/C No.21: 0.5% (E.D. L.I)
- A/C No.22: 0.01% (EDLI admin charges)

Note: The PF Ceiling amount is Rs. 6500/-; if the Basic salary is >= Rs. 6500/-, the pension salary will be Rs. 541, and the remaining amount will go to PF (A/C No.1).

Regards,
PBS KUMAR

Thank you for your valuable reply. I would like to clarify whether the 12% contribution should be equal, or if it depends on the employer, who can choose to contribute based on the fixed amount of ₹6500 or on the gross salary.

Thank you.