Can Employers Deny PF if Your Basic Salary Exceeds the Rs. 6500 Ceiling?

At the time of joining a new company, an employee's basic salary is fixed at Rs. 8000/-. Can the employer deny PF to the employee stating the reason that the basic salary is above Rs. 6500/-, which is the ceiling fixed for PF deduction?

Membership in the P.F. Scheme

If the employee is already a member of the P.F. Scheme from their past employment, they are entitled to continue their membership. Therefore, an employer is required to obtain a declaration in Form 11 from an employee joining an establishment. Otherwise, they become an excluded employee and cannot contribute to the scheme. However, the P.F. Scheme permits any employee to become a member of the scheme if a joint request is made by the employee and the employer to the P.F. Commissioner, who can then allow the employee to be a member of the Scheme.

Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai

As Mr. Sai said, if any new employee joins and had PF benefits in the earlier organization, then he/she is eligible for PF contribution. If there were no PF benefits in the earlier organization, then he/she shall be exempted.

If an employee has already become a member of the EPF, then even if their salary is above 6500, they must continue as a member of the EPF, even if they do not wish to.

Court Order on PF Contributions by Employers

Please find attached the court order from the High Court of Chandigarh regarding PF contributions by employers on the "Basic" salary. I hope this will add value to your academic interests.

Thanks & Regards,
Swapna Sarith.

Mostly smaller companies and family-run companies take this as a tool for their benefit, but it is not a right practice. This can be done only in the cases as below:

1. A fresher who joins with a basic salary > Rs. 6500 can be exempted from PF.
2. An employee who has not opted for PF in his previous employment.
3. An employee who has left the previous organization, withdrawn his PF amount, and joined another company (mostly in case of a break in service).

For the above cases, Form 11 has to be signed by the employee for future inspection. Other than this, an employee who is already a member of EPF in previous employment cannot be exempted from EPF, even if he gets a basic salary above Rs. 6500/-. He can be restricted to pay Rs. 780/- (which is 12% of Rs. 6500).

Please review and let me know if you need any further clarification.

Best regards