Why Do Both Employees and Employers Contribute 12% to PF? Seeking Clarity After an Interview

Understanding PF Contribution Rates

I had an interview at a reputed company, and the HR manager asked me a question related to PF. The question was why there is a 12% contribution from both the employee and employer sides, and why not 10% from either side. Please provide me with the exact reason.

With regards,
Paras Thakur

Employee: 12%
Employer: 13.61%

Contribution:
- 3.67% = Provident Fund (A/c No.1)
- 8.33% = Pension Fund (A/c No.10)
- 0.5% = EDLIS - Employees Direct Linked Insurance Scheme (A/c No.21)

Administrative Charges:
- 1.10% of emoluments = Provident Fund (A/c No.2)
- 0.01% of emoluments = EDLIS (A/c No.22)

Total: 25.61%

I understand the information you provided regarding contributions, but my question does not pertain to contributions. Instead, it concerns the reason behind the fixation of 12%. Please kindly provide me with this information.

Regards,
Paras

The answer is that the 12% contribution is decided by the government. It can increase or decrease this percentage.

Regards,
Varghese Mathew
[Phone Number Removed For Privacy Reasons]

The Origin and Evolution of the EPF Scheme

The EPF scheme was originally envisaged as a savings plan that would be useful for the workforce at the time of their retirement. Since there were no other facilities like postal savings, LIC, or banking existing at that time, and most of the employees were not educated to keep savings, it was thought that out of one year's earnings, one should provide a month's wages as savings for old age (i.e., 8.33%). The percentage was subsequently increased to 12% in stages. Various ILO conventions have also influenced this regard. Full details can be understood by reading about the Trade Union movement in the pre-independence period and the preambles of various welfare-oriented acts enacted at that time.

Regards,
M.Venkatraghavan