Understanding PF and ESI: Are Contributions the Same for Different Salaries?

Please help me clarify whether there is any ceiling for PF. In an interview, they asked whether the PF contribution for a person with a basic salary of 7,000 and another with 25,000 is the same or not. Could you provide me with details about PF and ESI? Is there a website that offers all the necessary information?

Thanks,

Pradeepa

Please use these attachments. Candidates appearing for HR posts are expected to know at least a few basic pieces of information on several labor laws. I would advise you to buy cheap editions like BARE Acts of important Acts such as PF, ESI, Gratuity, Payment of Wages Act, Bonus Act, etc., to enrich your knowledge.

All the best.

Regards,
Kumar S.

I am appending below an extract of the Act. I hope it answers your question. A member, if he so desires, may contribute an amount exceeding 12 percent, as the case may be, but the employer shall not be under an obligation to pay a contribution over and above his contribution payable under the Act. {Para 29}

Good luck.

Regards, Colonel Gahlot 'TRURECRUIT'

Coverage for CPF
Employees drawing a basic salary up to Rs 6,500/- have to compulsorily contribute to the Provident Fund, and employees drawing above Rs 6,501/- have the option to become members of the Provident Fund. The employee contributes 12% of his/her Basic Salary, and the same amount is contributed by the employer.

Coverage for ESI
Employees drawing wages up to Rs. 10,000/- per month, engaged either directly or through a contractor, are covered.

To be deemed as wages for ESI Contributions
• Basic pay
• Dearness allowance
• House rent allowance
• City compensatory allowance
• Overtime wages (but not to be taken into account for determining the coverage of an employee)
• Payment for the day of rest
• Production incentive
• Bonus other than statutory bonus
• Night shift allowance
• Heat, Gas & Dust allowance
• Payment for unsubstituted holidays
• Meal/food allowance
• Suspension allowance
• Lay off compensation
• Children education allowance (not being reimbursement for actual tuition fee)

Regards

Dear Pradeepa, we will reply to you and clarify your concept, but we would like to hear your views first on both issues. Thank you, everyone, for the replies.

From the employees' side, they have to contribute 12% in both cases. From the employers' side, the contribution will be limited to 780 in the first case. I think it's the same in the second case as well, but I'm really not sure. Please clarify this for me as I have just started my career in HR.

Thanks,
Pradeepa

PF and ESI Contribution Guidelines

Please note the following:

1. The PF Act is applicable to an establishment employing 20 or more persons.

2. Any person employed for the first time in an establishment with a salary up to Rs. 6500/- will be an eligible member (compulsory member).

3. Any person employed for the first time in an establishment with a salary above Rs. 6500/- will have the option to join the fund or not. If opted, he/she will be an Optional Member.

4. Any person who is already a member of the PF Fund will be covered under the Scheme even if he/she is employed on a salary above Rs. 6500/-.

5. The employer is bound to pay contributions only up to Rs. 6500/- as per the provisions of the Act/Scheme. However, the Act does not prohibit the employer from paying contributions above Rs. 6500/-.

There are many employers/establishments paying contributions to the Fund on an actual basis without any limit. In such cases, if the wages (Basic + DA) are deducted/paid on an actual basis, even if the wage is above Rs. 6500/-, the contribution will be calculated accordingly.

Addressing Your Query

There are two members: one's Basic wage is Rs. 7000/- and the other's is Rs. 25000/-.

- If the employer, as a policy matter of the establishment, is paying contributions only up to Rs. 6500/-, the contribution will be restricted to that amount for both employees (Rs. 6500/- @ 12% = Rs. 780/-).

- If the employer is paying contributions on an actual basis, it will vary as explained above: for the employee earning Rs. 7000/-, it will be Rs. 840/-, and for the employee earning Rs. 25000/-, it will be Rs. 3000/- @ 12%.

For the coverage of ESI, the mandatory upper limit is Rs. 15000/-. Therefore, the first employee will be covered under the Act, and the other one will be outside the coverage of the ESI Act. Please note that the definition of wages in the PF Act and ESI Act is entirely different. Fixed Conveyance Allowance, HRA, etc., will be considered while calculating the Total Wage in the ESI Act, whereas in the PF Act, it will not be considered.

Regards,
PKjain

No upper ceiling, but the I.T. exemption is available for a maximum of ₹1 lakh, and the contribution beyond this limit is taxable.

Pon