Understanding Voluntary PF Contributions: How Much Can Employees and Employers Add?

I am working as an HR Associate in the engineering industry. My employees are availing themselves of the facility of P.F. (12%). One of our employees is asking for his voluntary contribution of P.F. (12%). In this regard, please help me to get the below doubts clarified.

Voluntary Contribution Percentage

1. To what extent of % is the voluntary contribution possible?

Employer Contribution Matching

2. For example, if there is a possibility of providing 24% from the employee's side, should the employer also contribute 24%?

Terms and Conditions

3. If the above points are applicable, please guide the terms & conditions along with the forms and formats.

Please help me in this regard.

With regards,
Dinesh K.T.

Voluntary Provident Fund Contribution

An employee can contribute even 100% of their salary to the Provident Fund (PF) as a voluntary contribution. The employer's contribution shall be restricted to the statutory contribution of 12%. Therefore, if your employee is willing to add a voluntary contribution of 12% over and above the statutory contribution of 12%, you can permit it. You may collect a written consent letter from the employee authorizing you to deduct 24% from their salary.

Regards,
Madhu T.K

An employee can contribute up to 88% of their basic salary towards voluntary PF, in addition to the normal statutory deduction of 12% of the basic salary. This contribution is not based on the gross salary. However, the employee cannot contribute their entire salary to the PF as per the clause in the Payment of Wages Act.

According to the Payment of Wages Act, the total deductions from the salary should not exceed 50%. Therefore, it is important to verify the total deduction amount from the salary if an employee wishes to contribute towards the PF.

It is not mandatory for the employer to match the employee's contribution percentage. The employer is only required to contribute the statutory 12%.

Thank you.

I agree with Pragnaa here. There is no obligation on the employer to match the VPF percentage of the employee. The employee can choose their portion. Also, VPF is always calculated as a percentage of Basic and not the gross salary.

Employer Contribution to Voluntary Provident Fund

Employers are not required to contribute more than 12%, even if the employee contributes more. However, the employer has to pay the statutory charges, such as inspection and administration charges, toward the voluntary contributions of employees.

Regards,
A G Desai
GM-Legal
MSPL Ltd

Understanding Wages Under the EPF Act

Wages under the EPF Act consist of basic wages, dearness allowance (DA), and food allowance. On these wages, one can contribute 12% to the Employees' Provident Fund (EPF), and the employer will match the same amount.

Voluntary Provident Fund (VPF) Contribution

Regarding the Voluntary Provident Fund (VPF), up to 20% of PF wages can be contributed. The employer does not need to pay any contribution on the VPF amount, except for inspection and administrative charges.

Regards,
N. Prakash, Meil

Provident Fund Contribution Details

1. The Provident Fund (PF) is calculated based on the Basic Pay. A 12% contribution is mandatory from both the employee and the employer.

2. Voluntary Provident Fund (VPF)

- The Voluntary Provident Fund (VPF) allows employees to contribute more than the mandatory 12%, up to 100% of their Basic Pay (PF 12% + VPF 88%).

3. The employer is required to match only the mandatory 12%. There is no obligation to match the VPF unless the employer chooses to do so.

Regards,
Rajusiachen

It is not known how there can be a deduction to the extent of 100% of the wages (basic + DA + retaining allowance) when there are other statutory deductions to be met like ESI, labor welfare fund, professional tax, and income tax, etc. Apart from this, there is a stipulation in the Payment of Wages Act that the total deductions shall not exceed 70% of the wages. No doubt the P.F Act has not stipulated any upper limit on the rate for voluntary contribution, thus technically 100% deduction of the wages towards P.F seems right, but in my view, the same stands limited by the obligations under other laws. The object of compensation and salary is to provide a living to the employee out of it, and hence some portion of the wages is to be left to the employee to meet his basic needs.

Regards,
B. Saikumar
Mumbai