Is Capping Wages at Rs. 6500 for PF Contributions Legal? Seeking Advice

Dear friends, I am a practicing labor consultant for the past year. In one of my client's offices, the basic + DA wages of all employees exceed Rs. 6500, and all of them are covered under PF. However, when calculating the PF contribution, we are capping the basic + DA at Rs. 6500, resulting in a contribution of Rs. 780. For instance, if an employee's basic + DA is Rs. 15,000, the PF is computed based on Rs. 6500 (contributing Rs. 780) instead of Rs. 15000.

Please advise if this practice violates any laws.

Thank you for your attention.

Regards,

Procedure for PF Contribution

There is a procedure where a company can avail of PF, i.e., 12% on Basic + DA subject to 780 (which is the minimum PF contribution), or whichever is lower.

Though the employee's wages exceed Rs. 6500/- (in your case it is Rs. 15000/- per month), the contribution can be restricted to Rs. 6500/- per month, which amounts to Rs. 780/- per month for each employer's and employee's share.

B. Saikumar
HR & Labour Law Advisor
Mumbai

Employer's Option for PF Contribution

The employer has the option to restrict the payment to only Rs. 780 (taking 12% of Rs. 6,500). However, the employee has a voluntary contribution option to contribute even 100% of the share. Most companies don't do this due to uniformity and calculation errors. If more employees are willing to make voluntary contributions to the employee share, the company has to take steps to accommodate these requests.

Pending Proposal to Increase PF Limit

There was a proposal to increase the PF limit from Rs. 6,500 to Rs. 10,000 in 2009, but it is still pending. ESI has increased its slab periodically, but in PF, after 2001, there has been no amendment to increase the wage ceiling slab from Rs. 6,500.

Thank you all for your reply. Please let me know if there is any notification, circular, or section that permits us to calculate the contribution under this method.

Thanks