Confused About Employee PF Contribution Calculation? Need Help with My First Project!

Employee PF Contribution Calculation Issue

I have a scenario where an employee joins on the 21st of May, and his basic salary (prorated for 11 days) is $11,238.00. The PF settings here require a minimum of 12% of his basic salary and 12% of the eligible basis ($6,500).

Now, since his basic salary is more than $6,500, his PF contribution should be $780. However, the system is calculating the basis on a pro-rata basis ($6,500 * number of days in the month) and coming up with an amount of approximately $278. The client insists it should be $780, given the basic salary exceeds $6,500.

How should I address this issue? This is my first project, so any assistance would be greatly appreciated.

Regards,
Vibin

Gurus can help you if you provide answers to the following questions:

1. In which software/system are the settings being displayed incorrectly?
2. Are you a payroll software provider?

Regards, Arun J.

No, I am an SAP HR consultant. So, when I am configuring in SAP, it's reflecting so. Legally, I just want to know how the prorate on the above question works.

Regards,
Vibin

I am not linking my question to SAP or some other software. In general, as per the PF Act, if an employee joins in the middle of the month, how will his PF be calculated? Can you suggest a method so that I can implement the same concept in my software?

Just in general terms, how is PF prorated if an employee joins in the middle of the month?

Regards,
Vibin

Dear Vibin,

Regarding the example you provided, my monthly basic salary is 10,000. When an employee joins on the 21st of May, the basic salary is prorated for 11 days. Therefore, my prorated basic salary amounts to 3,548 (10,000 * 11/31). The PF will then be calculated on 3,548 * 12/100, which equals 425.76.

Thank you.

Best regards,
[Your Name]

As per your statement, it should calculate exactly as you said. However, I have an issue regarding the basic pay of $11,238.00. The PF contribution is showing as $275. Is it legally correct as the system is calculating $780/31 = $25 ($25 * 11 = $275)? Is this calculation legally correct?

Regards,
Vibin

Case 1: Considering Monthly PF Below 6500

Suppose the employee's basic pay is Rs. 5000 for a month (30 days). If he has worked only for 15 days, his basic pay will amount to Rs. 2500 for that particular month. Now, his PF contribution will be Rs. 300 for that month.

Case 2: Considering Monthly PF Above 6500

Suppose the employee's basic pay is Rs. 18000 for a month (30 days). If he has worked only for 15 days, his basic pay will amount to Rs. 9000 for that particular month. Now, his PF contribution will be Rs. 1080 for that month. (If the employer has restricted the contribution for PF up to 6500, then the PF contribution will be 780.)

The above monthly days shown are just examples. If the client's company calculates salary based on 26 days, then the PF amount will differ.

Regards, Arun J.

Hi Nirva, do you mean to say 275 is correct as per legal guidelines, or should it be 780 since his basic salary is more than 6500?

The concept of LOP or unpaid days works fine for me, but the issue arises with employees who join or terminate mid-month. PF is calculated based on the number of days * 30, and the amount deducted even if the employee's BASIC is more than 6500.

PF Deduction for Mid-Month Joiners or Leavers

Is it correct that even if an employee joins or leaves mid-month, and their basic pay is above 6500, a flat deduction of 780 should be made?

Clarification on PF Calculation

For a basic pay of Rs. 11,238.00, the PF is Rs. 275. Is it legally correct as the system is calculating 780/31=25 (25*31=275)? Is it legally correct?

The answer is it's incorrect because the Monthly PF should be Rs. 780. With 31 days in the month, the per day PF is Rs. 25 (780/31). Therefore, the Monthly PF should be Rs. 775 (25*31), showing a shortfall of Rs. 5. This indicates an incorrect calculation.

Regards,
Arun J.