Confused About PF Deductions After Salary Raise? Need Guidance on Eligibility and Procedure

Dear Friends,

Please help me regarding the PF issue. I am totally confused. The problem is that one of the employees is earning 12000/- and the salary deductions are as follows:

Basic: 6000/- (50% of salary) and the remaining deductions are other.

I deduct the PF of 12% on basic. However, recently the company gave him a raise, and now his salary is 16000/-

My problem is that only those people who have a basic salary below 6500/- are eligible for the PF. But his basic has increased to 8000/-. In this case, how should I deduct the PF from his basic, considering he is still continuing his service?

If he is still eligible for PF, kindly tell me the procedure.

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Warm Regards,

Ram NIHAR HR

PF will always be 12% of the basic pay. You have to find out from which month onward he got the hike. After the hike, the PF deduction will be 12% of 8000 every month. Before the hike, you need to deduct 12% of 6000 for each month. The equal amount should be paid by the employer as well. Thanks.

Hi Ramu,

You need to consult your PF Consultant because there are certain monthly slabs up to which the employee has to continue with PF contributions. For example, if his salary increased in the month of April, he still has to contribute to PF for the monthly slab from January to June.

Regards,
Ank

Dear Ram,

The deduction of PF, if Basic transcends 6500/-, is at the discretion of the Company. If you have a policy to allow PF deduction of salary above 6500/-, it can be deducted. It is up to choice. There is no legal binding on that. Hope it is convincing.

Regards,
Pankaj Sharma

Hello, I went through your case. As per the PF law, for an employee earning more than 6500/- as his basic salary, it is voluntary. Now, if he wants to continue in PF, then your liability as a company is limited to 6500/- only. That means if 12% of the basic amount goes to PF, then his PF may be deducted as 960/- (8000*12%). He can contribute more than this or even less than this, but your liability as a company is limited to 780/- max (6500*12%). If he chooses to have his PF deducted at 6000 only, in that case, both of you will be contributing the same, i.e., 720/- (6000*12%).

We can be in touch and share more knowledge at [Login to view].

Hi,

Rs. 6500 is the basic limit, up to which every employer contributes towards the Provident Fund from both sides. Even if the employee crosses the initial limit of Rs. 6500, the deduction of PF will continue until the employee is working with the same employer. In this scenario, one may increase the Basic but cannot reduce it.

In your case, you may fix his basic as per the policy or continue with the old basic fixed. The hike may be added to other perquisites like HRA and other allowances. However, as per your company policy, you should have a basic of Rs. 8000 (50% of Rs. 16000), and upon this, you should start deducting PF on the new Basic.

Yes, this employee is still eligible for the PF benefit despite his basic increasing to Rs. 8000 from Rs. 6000.

Warm regards,
Umesh Chaudhary
(welcomeumesh@yahoo.com)

Dear All,

I saw your reply. Let's take this case. The initial Basic was Rs. 6000/-, so the PF deduction is 12% of the basic. Now the basic is Rs. 8000/-, as per the PF Act, you will have to deduct the PF. There are two options:

I) As per the Act, deduct PF 12% of Rs. 6500/-
II) You can deduct PF of 12% on Rs. 8000/- but will have to check with your management whether you want to restrict to statute or you will want to deduct on actual basic. If yes on actual basic, that 12% of Rs. 8000/- will be Rs. 960/- for employee to PF fund; in case of employer, Rs. 541/- to pension fund as pension is only 8.33% on Rs. 6500/- rest amount in PF fund.

Thanks & Regards,
Amal Shere

Dear,

As per the PF Act, PF deduction is compulsory up to a salary of 6500/- (Basic+DA). If anyone joins the organization:

1. For a salary below 6500/-, PF deduction is compulsory, and if the service continues above the salary of 6500/-, their contribution becomes compulsory.

2. For a salary above 6500/-, PF deduction is not mandatory. If the company and employee wish to contribute, the employee should submit an application to the Regional/Sub-Regional Commissioner of PF in their area to obtain permission for PF deduction.

Thanks,

Amit Kumar Tawar

Hi friends,

Please remember that the maximum limit of basic on which PF could be deducted is Rs. 6500/- irrespective of the gross salary. In the given case, the PF should have been deducted for Rs. 6000/- if the basic is the same. If the gross salary has been increased to Rs. 18000/- and the basic to Rs. 8000/-, the limit of basic for the purpose of PF is Rs. 6500/-.

However, in some companies, the PF is deducted on the actual basic even if it is more than Rs. 6500/- with equal contribution. In other companies, PF is deducted on the actual basic, but the companies restrict its contribution to Rs. 6500/-. In any situation, the PF is deducted at 12%. Any clarification Sir??

Thanks and kind regards,

Michael Nicholas

This is the right thing that Kamal has said: the contribution of an employee is always 12% of his/her Basic+D.A. This amount is again contributed by the employer. In the case of a basic hike, the deduction will be made on the hiked basic+D.A, that is 12% on the same.

We have to calculate based on his basic salary hike from the month that has taken effect. Say, till August '2007, his basic was Rs. 8000/-, i.e., P.F. from the employee is Rs. 960/-. Now, from Sep '2007, if his basic is Rs. 16,000/-, so P.F. deduction will be Rs. 1920/-. Take a reference from the salary slip.

Regards,
Somesh

Hi All,

Amal Shere's reply is very true; it's the right and correct answer to the query given by Mr. Amal Shere.

Either deduct on 6500.00 as per the act or on increased basic if the employer agrees to pay an equal contribution on increased basic.

As for pension, you may restrict the contribution to Rs. 541.00 (i.e., 8.33% of 6500), and the balance from the employer's share goes to the PF account of the employee.

Furthermore, pension may also be contributed on an increased salary more than 6500.00; in the act, there is no restriction to contribute towards the pension only up to 6500.00. Once one opts for the basic limit of 6500.00, then afterward, on an increase in basic, they cannot go for pension on the increased basic.

For example, if the initial basic of an employee is 6000.00, then the pension share will be Rs. 500.00. If the basic becomes Rs. 8000.00 on an increase, then there is the option for pension contribution to either opt for the limit 6500.00, i.e., 541.00, or on the increased basic 8000.00, i.e., 8.33% of 8000.00 = 666.00.

Normally, establishments opt for the pension scheme up to the basic Rs. 6500.00 and contribute Rs. 541.00 only. For P.F., they contribute on more than 6500.00, but there is no provision in the Act to limit your contribution only up to 541.00 for the pension scheme.

Hope this clarifies the whole idea of P.F. & Pension under the Employees Provident Fund & Misc. Provisions Act, 1952.

For more information, you can contact:

Thanks,

Mohd. Arif Khan

Email: [Login to view]

Dear friends,

As per the comments, this is not a problem at all. All the employees will come under PF until they are in service. It will always be good for the employer to restrict all employees to PF. If employees feel that they don't want to come under PF, maintain separate attendance for them and receive a letter stating that they themselves have prepared for non-deduction of PF, approved by the management.

If the employee crosses the basic amount of Rs. 6500/-, have a standard deduction of Rs. 780/-. This is one of the statutory rules in EPF. Follow this standard rule for all employees who cross the basic amount of >=6500. You will be safe in this case.

If you deduct 12% for Rs. 8000/-, it will be Rs. 960/-, a huge deduction for employees. Also, from the employer's point of view, the management will have to pay more. Some employees do not like to accept a huge deduction even though it is a saving.

Thanks and Regards, Manimegalai

Hi,

The threshold limit for PF exemption is only for those who are freshers. It does not debar people with higher basic but offers them a one-time option to join PF. Once he joins, he remains a member even if his basic increases beyond the prescribed limit; he remains covered under EPF.

Further, since this person in question is already enrolled as a PF member, he continues to remain a PF member irrespective of his basic salary, which is expected to increase every year.

Trust this clarifies.

Regards, Sateesh Chandra

Dear friends,

I don't know why you are confusing yourself. Please suggest your answer bearing the act in your minds. Actually, the basic was Rs. 6000, and it has been increased to Rs. 8000. The basic statutorily allowable by PF is Rs. 6500.

There are only four options left behind:

Option 1: PF Deduction - from the employee on Rs. 6500 and the employer on Rs. 6500.
Option 2: PF deduction - from the employee on Rs. 8000 and the employer on Rs. 8000.
Option 3: PF Deduction - from the employee on Rs. 8000 and the employer on Rs. 6500.
Option 4: The employee can submit a letter to PF authorities through his/her employer stating that he is not willing to contribute towards PF since he has crossed the Rs. 6500 limit.

Any contradictions, let us discuss in a forum on this.

Thanks and regards,
Michael Nicholas

Dear Mr. Abinav,

Once an employee crosses Rs. 6500, he has the option either to continue or to abstain from PF contribution.

Regards,
Michael Nicholas

Hi!

After reading so many answers to your questions, I think Mr. Amal Shere is absolutely right, and I also share the same view on this. In P.F., if you once cover your employee and then you raise the basic salary, he has to give his contribution, which is 12% on 6500/- only. If you want to give his P.F. contribution on more than 6500/-, then you have to take permission from your management as they also have to contribute their share on the same amount, and the contribution towards will be on 6500/- only as that is the pension scheme.

Regards,
Abhinav

Hi!

Actually, he will be covered until he leaves the organization or changes jobs. Once the P.F. number is issued, he is covered by the P.F. An employee is not covered when he is hired with a salary above 6500/-.

Regards,
Abhinav

Dear Friends,

Here is the clarification of PF Contribution;

Clarification about Contribution

After revision in wage ceiling from Rs.5000 to Rs.6500 w.e.f. 1.6.2001 per month, the government will continue to contribute 1.16% up to the actual wage of maximum Rs.6500 per month towards Employees' Pension Scheme. The employer's share in the Pension Scheme will be Rs.541 w.e.f. 1.6.2001.

Under Employees' Deposit-Linked Insurance Scheme the contribution @ 0.50% is required to be paid up to a maximum limit of Rs.6500.

The employer also will pay administrative charges @ 0.01% on maximum limit of Rs.6500 whereas an exempted establishment will pay inspection charges @ 0.005% on the total wages paid.



Notes:

The above clarification is given by taking wages up to a maximum of Rs.6500 towards wage (basic+DA).

Since an excluded employee i.e. drawing wages more than Rs.6500 can also become member of the Fund and the Schemes on joint request and if, for instance, such an employee is getting Rs.10,000 per month, his share towards provident fund contribution will be Rs.1200 e.g. 12% and employer's share towards provident fund contribution will be Rs.659 and Rs.541 towards Employees' Pension Fund.

Regards,

PBS KUMAR

It is not necessary to deduct PF if the salary crosses the limit of Rs. 6500. It totally depends on the employee's wish. Actually, whenever the basic is above Rs. 6500, the employer needs to get permission from the PF office. Only then can the PF amount be deducted. However, in reality, this rule is not always followed. So, it is not necessary to deduct the PF amount.