PF Deduction Policy Change: Can We Stop Deductions for Higher Salaries?

PF Deduction Policy Change Inquiry

In our company, the management is planning to remove PF deduction for employees whose basic salary is more than ₹6,500 per month. Please suggest whether we can remove the PF account for employees whose PF account already exists, or if there is any alternative way to stop PF deduction.

Regards,
Mahalakshmi

It will be difficult if you have already started this practice. Literally, you will be reducing the compensation. It requires acceptance by employees; it will generate dissatisfaction. I have not examined the legality of this so far.

PF contribution CANNOT be stopped once started, even when the Basic exceeds Rs. 6500/-. You can offer a new incumbent an option to opt in or opt out of PF if the Basic is more than Rs. 6500/-.

Thank you.

To the best of my knowledge, there is no option for removing PF deduction if an employee is under regular scales of pay. We can only restrict the contribution to Rs. 780/- up to the wages of Rs. 6500/- per month.

Regards,
Mangai
Chennai

Thank you for your support. Can you please help me out with the procedure if the employee is not opting for PF? Does Form 11 support the same?

Regards,
Mahalakshmi

Yes, Form 11 is mandatory for the company to keep for their records for all those employees opting out of PF.

There is no provision in the EPF Act to stop coverage of employees irrespective of their basic salaries once their contribution has started in the organization.

Regards,
Suresh

Provision for Stopping PF Contribution

There is no provision for stopping the recovery and deposit of PF contributions to PF authorities once the company has started. The employer and employee cannot stop the payment of EPF contributions. However, for new joiners, the exercise is optional if their Basic + DA is more than Rs. 6500/- per month. In such cases, employees must submit the prescribed Form-II with all the details.

Regards,
Moorti

Dear Mahalakshmi, PF is mandatory and is monitored by the Central Government through the Employees Provident Fund Act, 1952. As per the Act, the management must pay PF based on the Basic Salary of the employee. If the employee's salary exceeds Rs. 6,500, the management does not need to contribute the excess amount. There is another proposal pending at the government level that suggests the management has to pay PF for the entire salary amount, even if it exceeds Rs. 6,500.

For employee satisfaction, you need to inform all your employees. Similarly, you need to inform the concerned PF office for the same and obtain written approval from the respective PF commissioner.

Thank you.

Regards,
Ashish

You must act as HR. That's what you are, making the same tune as the employer. The employer would have asked you to stop PF benefits. You are HIS MASTER'S VOICE. As HR, you have to explain the position to your boss. Even now, you are asking about Form 11 to eliminate the employee from the PF scheme. This Form 11 needs to be filled for new entrants who are above Rs. 6500/-. Even for these employees, you have to ascertain whether they were covered under the EPF SCHEME in the previous unit.

Regards,
V. Subbarao

Just curious to know if a company terminates all of its employees and hires them again, would PF deduction be mandatory if the employees also opt out of PF contribution? Thanks in advance.

I apologize for the confusion. Once you are in the PF scheme, you do not have the option to quit or remove your PF account. However, a new employee who does not have a PF account and whose PF wages exceed ₹6,500 can choose to opt out of PF by submitting Form II.

Regards,
Biju

Yes, PF is mandatory. For trade purposes, they are terminating and rehiring. This behavior implies that the employer is intentionally doing this to avoid PF contributions. The employees do not have an option in this scenario. According to the act, this is the only way to proceed.

Regards,
V. Subbarao

Once joined, it is compulsory to pay even if one exceeds the basic of Rs. 6,500/-. Now, there is a plan to remove the limit, and everyone has to pay. It's a measure of social welfare, and everyone has a right to enjoy that privilege.

Regards,
Hari

EPF Deduction Adjustment

If an employer is deducting and depositing EPF amounts above Rs 6500, they can later reduce it to Rs 6500. In this scenario, Section 12 of the EPF Act, which prohibits reducing wages, will not apply. This was the decision in the case of Marathwada Gramin Bank Karamchari Sanghatana and Another vs. Management of Marathwada Gramin Bank and Others (SC 2011 LLR 1130).

What amount is to be deducted when the basic salary crosses Rs. 6500/-? Is Rs. 780/- the maximum, or can this amount be increased? Please provide your opinion.

Thanks,

Vijay

Rs. 780 is the ceiling amount for a ₹6500 per month basic + DA. Alternatively, you can provide 12% of the actual basic as PF (3.67% + any excess amount over ₹541) and Pension (8.33% or ₹541, whichever is lower), along with 1.61% for Admin and EDLI charges based on the employer's preference.

You can stop PF contribution if the Basic salary is more than Rs. 6,500. According to the law, the employer can be exempted. However, if you calculate the CTC of a higher salaried person, PF is helpful in showing a bigger amount, and the employee is tied up with the company. On the other hand, it is a significant loss to employees.

Suggestion for HR Professionals

I want to suggest one thing to all HR professionals: write a letter to the PF commissioner to increase the limit of PF contribution, which is in favor of employees. The average minimum wage in India is Rs. 5,044 for 26 days, and the maximum PF limit is Rs. 6,500.

Thank you,

Parvez

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