Understanding PF Deductions: Should It Be Part of Basic Salary or Added Separately?

I want to understand if the PF of employees should be deducted from the Basic salary component or if it should be in addition to the Basic amount of an employee's salary. For example, is it Basic + HRA + Conveyance + Special allowance + employee's PF + employer's PF or Basic + HRA + Conveyance + Special allowance + employer's PF?

Provident Fund is generally deducted both from employees as well as the employer, 12% of (Basic + DA). Establishments employing 20 or more persons are required to deduct PF from the salary of employees. The salary breakup for a monthly salary (10,000) is not fixed as it varies from company to company and, in general, it includes Basic, Conveyance (800), HRA (40% or 50% of Basic), Medical allowance, Special allowance, etc.

Example of Provident Fund Calculation

Consider the basic of an employee if less than 6,000 (say 6,000/-).

- Employee contribution will be 12% = 720
- Employer contribution will be 12% (which is again classified):
- EPF (3.67%) = 220
- EPS (8.33%) = 499
- EPF Admin charges (1.10%) = 66
- EDLI (0.50%) = 30
- EDLI Admin charges (0.01%) = 1

Consider the basic of an employee if less than 10,000/-.

- Employee contribution will be 12% = 659
- Employer contribution will be 12% (which is again classified):
- EPF (3.67%) = 541
- EPS (8.33%) = 541 (It is calculated on 6,500/- and the remaining amount is added to the EPF)
- EPF Admin charges (1.10%) = 110
- EDLI (0.50%) = 33
- EDLI Admin charges (0.01%) = 1

Hope this clarifies your query.

The PF is deducted from the basic salary, whether it is 40% or 50% of the gross amount. You can reduce the PF contribution by adjusting the basic salary to $6500, resulting in a PF deduction of $780. This adjustment helps in saving both the employee's and employer's funds.

Regards,