How Will the New EPFO Circular Affect Our Salaries and PF Contributions? Let's Discuss!

EPFO Circular Discussion

Today in the newspaper, we saw an EPFO circular dated 30-11-2012. I don't know if it has been approved yet, but I would like to discuss it with professionals who have a better understanding of PF.

1. Any idea when this may come into action? They mention that PF should not be calculated in Basic; it should be Basic + all allowances. This change could significantly reduce the take-home amount, which may have serious repercussions for junior staff.

2. Is it possible for employees who are currently part of PF and have had their salary increased to a basic of 6600/- to opt out of PF within the same organization? Please check and respond.

I need help from all the professionals as this may impact most of us.

Best Regards,
Monika Marwah

Attached is the document for your reference.

Thanks,
Monika

No, it doesn't mean an employee shall be exempted from contributions. For the calculation of PF, we should now calculate Basic + DA, Conveyance, HRA, and other allowances too.

I agree with the calculation, but setting aside this news, could we offer this option to employees who are not interested in taking home less pay and prefer more statutory benefits? Is it possible to exempt them from PF deductions if their basic salary is Rs. 6600/-?

Please advise! I am currently encountering an issue with my packers who are taking home Rs. 6000 after all deductions. We only deduct PF from the basic salary. If we adjust the calculation based on the entire salary, their take-home pay would reduce to around Rs. 4500/-, which could make it extremely challenging for them to continue working with us or any other company at a similar level. This issue would impact all our employees.

I need urgent assistance!

Thanks,

Monika Marwah

I actually had a conversation with the PF Authority, and they are saying that except for HRA, all other allowances plus Basic should have 12% deducted for PF, with a ceiling limit of Rs. 6500. Employers may choose to contribute more than Rs. 6500 if they wish.

Thank you.

Thank you so much; I really appreciate your response. If an employee has a basic salary of more than Rs. 6500/-, can the employer submit PF or not? That's okay, but what about the employee? Is it compulsory for him, or is it discretionary?

Major Concern: PF Submission Changes

My major concern is if someone is submitting regular PF every month (e.g., till Dec '12) and from Jan '13, we stop submitting the PF by stating that we are not doing so as his salary is already above Rs. 6500 basic and he is already exempted, will that create any issues?

Also, does anyone have a written document from the PF authority for further clarification?

Thanks,

Monika

Earlier, there was an exemption for HRA, but now even HRA is included. Shortly, they might update the same. The reason for telling so is that earlier there was some declaration from the Madras High Court stating that except HRA, all the components should be considered. However, this circular is different from that.

Okay. You cannot stop deducting EPF even if his basic salary goes beyond 6500, so don't do it.

Clarification on EPF Scheme

Regarding the written document about it, read the EPF scheme Sec 26; this will clarify the point. There is Sec 27 about the exemption of an employee from EPF, but for that, you have to prove to the EPFO that he is receiving better benefits from other Industrial Acts. So don't even get into it.

Notification on Allowances

Now about the notification about the inclusion of all allowances, it has no use until the act is amended. If not, then it will be challenged in the court of law and will be withdrawn, as it has happened before.

Stay Cool,
Atom.

Copy of the Circular

(#12 is about Wage and other Allowances)

Stay cool,
Atom

It is very confusing. One more article is being circulated, which is attached for further insight. Please go through.

Regards,
Prashant

Understanding the Employees Provident Funds Scheme

According to the provisions of the Employees Provident Funds Scheme, it is very clear that cessation of membership does not arise once the member reaches Rs. 6500. The member remains a member unless he quits the job or settles his account; otherwise, it is mandatory to contribute up to the mandatory limit.

Clarification on Basic Wages

Regarding basic wages, it is still ambiguous, but as per the provisions of the Act, basic wages are clearly defined with certain exclusions, which are valid to date. It is important to refer to the EPF scheme Section 26 to clarify this point.

Exemption from EPF

Additionally, Section 27 addresses the exemption of an employee from EPF, but proving that the employee is receiving better benefits from other Industrial Acts is necessary to qualify for this exemption. It is advisable not to pursue this exemption without thorough consideration.

Inclusion of Allowances

As for the notification concerning the inclusion of all allowances, it holds no significance unless the act is amended. If not, any such inclusion may be challenged in a court of law and potentially withdrawn, as has happened previously.

Stay Cool,
Atom

The ceiling limit of PF eligibility amount Rs. 6500/- is not mandatory but rather optional. The PF contribution may be remitted for employees whose basic salary is more than Rs. 6500/-, and there is no upper wage limit on the basic salary mutually agreed upon by the employer and employee.

FYI, the current circular published on 30th Nov 2012 in the newspaper has not been enforced or approved by the relevant Government authority to date.

Regards,
Rajib Mondal
Dy. Manager-HR,
CIAL, Durgapur
[Phone Number Removed For Privacy Reasons]

The latest news has not yet been updated by the PF Authority for all concerned individuals. If an employee's basic salary exceeds Rs. 6500 and they do not wish to continue, you can mark their name as resigned for this month in the PF records. Subsequently, you can rejoin their name in the register. Upon rejoining, only ESI deductions up to a gross salary of Rs. 15000 should be made, with the employee's basic salary exceeding Rs. 6500 indicating an exemption from PF contributions.

Thank you.

Compliance with Employment Transition Regulations

Once a member of the fund transitions to new employment, they must submit Form 11, which is mandatory. This form requires the furnishing of previous service details. Similarly, you cannot simply depict the situation as a resignation and new joining, as this could lead to legal proceedings against both the employee and the employer. Do not take compliance with statutes lightly. Edify compliance planners.

Regards.

Dear Monika,

Still, the latest news has not been updated by the PF Authority to all concerns. If an employee's basic salary is greater than Rs. 6500 and he does not wish to continue, you can mark his name as resigned this month in the PF records. Subsequently, you can rejoin his name in the register. After rejoining, you can only deduct ESI up to a gross amount of Rs. 15000. If his basic salary remains above Rs. 6500, you can indicate that he is exempted from PF.

OK. You are only considering the EPF Act and not even looking at the other industrial acts, so do not proceed without considering all aspects. The reason being, if the employee, after termination or resignation, discloses your suggestion to the EPF department, your establishment could face a "misrepresentation" case from EPFO, which is something you want to avoid.

Stay Cool,
Atom

To All,

To the best of my knowledge, I would like to shed light on the above issue. I hope the copy of the PF or Circular released has any worth. Any change in the Act or Amendment should be passed by Parliament; only then will it be considered. Until then, there is no need to worry about the issues mentioned in the Times of India newspaper.

I hope you all understand my point. Until Parliament releases the Government Order (GO), the situation will continue the same way.

Regards,
B. Anand Kumar

Actually, I was informed of what the PF Enrollment Officer told us during an inspection in our organization. I didn't mention my own ideas.

Dear All,

This entire week was a panic not only to the HR community but to all working communities. I will say that the TOI has created this panic by publishing the article on the front page with the broad headline “Save more in PF, take home lower salary every month,” and that too without studying all aspects of the EPF & MP Act 1952. The article is misleading with examples that created panic among all.

In our CiteHr, there are many postings in different threads on this topic. Many viewers viewed the postings. I appreciate the postings by the members, but very few discussions I found to be really meaningful.

By this time, many experts have given their opinions on this subject. Shri B.C. Prabhakar, President of the Karnataka Employers' Association, came out with a circular to its members. The said circular is posted in our CiteHr by Shri Sasidharan Kollery, which is available to us. Shri Vivek Sang has posted a clipping from Hindu dated 13.12.2012, which says to maintain the status quo on the circular, as stated by the Union Labour and Employment Minister.

With this, the matter is now clear to all. But still, I wish to give some points. These points I wish to give in every thread that I come across on this topic. This may be repeated but helpful in easy understanding.

Circular Context

The circular in this context is an internal circular giving guidelines to its officers for quasi-judicial proceedings under section 7A. The Sr. 12 in this circular on the splitting of wages is an explanation or clarification on the definition of Basic wages, which is a bit confusing and probably a half-hearted attempt by the officer who signed on his last day of retirement.

There is no mention in this circular regarding Paragraph 2(f) and/or Paragraph 26A. This means both these paragraphs are unchanged.

There is no change in Paragraph 2(f) and/or Paragraph 26A. EPFO cannot make changes in these paragraphs. Any amendment in law cannot be done by such kinds of internal circulars. No one has any right to do it.

Paragraphs for Reference

The said paragraphs are given below for ready reference:

Paragraph 2(f) of the EPF scheme defines an excluded employee as an employee whose pay at the time he is otherwise entitled to become a member of the Fund exceeds Rs. 6,500/- per month. The explanation to the paragraph defines the pay to include basic wages with D.A, Retainers allowance if any, and cash value of food concession admissible thereon.

Paragraph 26A, which contains the provisions with regard to the retention of PF membership, stipulates that where a monthly pay of a member exceeds Rs. 6500/- per month, the contribution payable by him and in respect of such employee by the employer shall be limited to the amounts payable on a monthly pay of Rs. 6500/- including D.A, Retention Allowance if any, and cash value of food concession.

The question of whether the allowances should be taken into account for the purpose of PF contribution is still pending adjudication before the Supreme Court.

According to me, the inclusion of all allowances for the purpose of EPF contribution will not affect the majority much. It will affect those who are paying basic less than the minimum wage rate.

Hope, now there remain no doubts in anybody's mind.

Thank and regards.

Keshav Korgaonkar