Freezing Pf Contribution At Certain Salary - PDF Download

We have a few employees whose salary is above Rs. 6,500/-, and both the employee and employer are contributing at a rate of 12% on the full salary.

Almost all employees whose salary is above Rs. 6,500/- have made a representation to freeze the PF contribution based on the March 2013 salary. They do not wish to contribute more than the current level due to severe inflationary pressure.

For example, the current salary is Rs. 10,000/- per month, and the contribution is Rs. 1,200/-. The revised salary is Rs. 12,000/- per month, but the salary for contribution is Rs. 10,000/-.

Since the salary is already above the statutory limit, is this permitted, and what is the procedure for obtaining consent from the staff and EPFO? Forms JD-I and JD-II do not have a facility for any such declaration.

The scheme provides for it with the permission of APFC. However, it does not specify whether contribution on an amount between the actual and statutory limit is possible.

Varghese Mathew
9961266966

Since PFable salary cannot be reduced as per provisions of the EPF Act, you may have to deduct and contribute PF based on the new salary only. You cannot give a salary of 12000/- and deduct 1,200 PF; that would be considered a short deduction and punishable under the provisions of the Act. Since it is a statutory deduction, the opinions of employees regarding the percentage or amount of deduction do not hold any significance. The employer must comply with the law, regardless of what the employees may say or demand.

Thanks for the clarification.

In that case, is it possible to classify the payment under some other category so that it does not become coverable for PF contribution? Is it possible for us to classify the payment as an INCENTIVE/PRODUCTIVITY BONUS or any other name.

Thanks,
Powercube

You can limit your contribution to Rs 6500 per month. Please refer to the Supreme Court decision in the case of North Malabar Gramin Bank.

Varghese Mathew
9961266966

Dixon,

Your contention is completely wrong.

The PF rules provide for payment of PF at 12% on basic + DA of up to Rs. 6500. Anyone getting a salary beyond that, the contribution required for both employer and employee is limited to Rs. 780 per month (12% of 6500).

Anyone drawing more than 6500 per month and wanting to have a deduction beyond the statutory limit would need to give a letter to the company asking for voluntarily higher contributions. The employer is not required to pay higher PF for the voluntary contribution portion.

So if the employees want to freeze their PF contribution at current levels, nothing stops them from doing it as the salary is already above statutory limits.

Regarding the reduction of salary, nothing being done by the employer here amounts to a reduction of salary. In any case, the rules do not allow for the reduction of salary. It specifically mentions reducing salary to adjust for the payment of PF when it is started for the first time. Furthermore, in this case, the salary is well above the statutory limit.

Powercube, please do not do any such thing. It is not necessary and any manipulation of salary can create problems later. It is perfectly allowable for the employee and employer to freeze the contribution limit to current levels as long as it is above the statutory limit. Each employee can give a letter specifying that they want their voluntary contribution limited to a specific amount from this time onwards. The company is not required to match the contributions beyond the limit of 780 per month.

I am glad to hear that your company is voluntarily paying higher than statutory rules. There are very few employers today willing to do that. Try to convince the employees to take advantage and keep contributions at a higher amount. They will benefit at a later date when they retire. Forced savings, especially those earning a good interest rate, are always a good idea.

Also, I hope you realize that PF is computed on basic and DA, not on the full salary.

Dear Saswata Banerjee,

I am grateful for your valuable insight. The decision to fix the contribution on the entire salary was also taken after taking the employees into confidence as a measure of goodwill and incentive to retain skilled and experienced employees.

Unfortunately, inflation is causing havoc with the budgets. Frankly, we will also be happy to limit the contribution at the statutory limit because we cannot increase salaries in line with runaway inflation and have to keep in mind the affordability.

Our consultant has advised us to seek a request letter from each and every employee drawing a higher salary and also to execute a fresh JD-1 form for submission to the PF office.

We are not sure whether we should officially intimate EPFO separately about the change or if the next monthly return and JD-1 will be good enough.

The consultants have also hinted to be prepared for a 7A enquiry. According to them, at the regional office levels, personal judgments rather than the law play a significant role.

I am attaching the Supreme Court judgment in the case of Marathwada Gramin Bank for immediate reference.

It is not mandatory that employers' contribution should be restricted to 12% of Rs 6500. Similarly, if the employees contribute 12% on Basic + DA, which is higher than Rs 6500, the same is not termed as 'voluntary contribution' as some of the members stated, but it is only a normal contribution. Voluntary contribution is that which is contributed at a higher percentage than 12%.

The Marathwada Gramin Bank's case was centered on the act of the management withdrawing the contribution on an amount higher than 6500 and thus restricting their contribution to 12% on 6500. That means, the Bank (employer) reduced the PF qualifying salary from a higher amount to Rs 6500 after giving due notice to the employees following section 9A of the Industrial Disputes Act, which provides that 21 days' notice should be given to the employees whenever any change in service conditions is required to be made. This being a change in service conditions by way of a reduction in contribution by the employer, the employer had complied with the statutory requirements. However, PF authorities objected to the move, saying that the employer cannot reduce the PF qualifying salary as per section 12 of the EPF & MP Act. That was rejected by the Apex court, stating that the PF organization cannot ask the employer to contribute any amount that is more than 12% of 6500.

If you relate the above with the service conditions of new generation establishments that expressly state in their CTC statements supplied to the employees, you will find that PF contribution is shown as a part of the remuneration agreed upon by the employer and employee, and as such, the employer is bound to contribute.

Madhu.T.K

Dear Madhu,

There is absolutely no problem if the CTC statement clearly shows the amount on which the PF contribution will be made. In new generation establishments, the basic salary is generally low, and most of the amount is paid as perks.

In our case, none of the employees are willing to contribute at a higher percentage. The whole issue came up only because the amount received in hand is supposedly insufficient to meet household expenditure. This appears to be the only way other than increasing salaries to put more amount in their hands. We intend to structure the salary such that the difference in employer's contribution on the higher salary and Rs. 6,500/- will also be included.

According to what I know, separate intimation to the PF department is not necessary.

Also, your consultant is right. You need to prepare for a 7A inquiry. Keep all documents ready to be able to show that you are in line with the law.

No, what I wanted to share with you was that when you include the employer's contribution in CTC, it would become difficult for you to reverse it. I also agree that many employees (who are paid lower salaries, in fact) do not wish to pay significant amounts towards PF and other contributions. However, at the same time, there is yet another majority who would like to accumulate good amounts. In short, setting the basic salary or statutory salary at a lower level should not be seen as an employee-friendly act but rather as an attempt to reduce the employer's burden of statutory contributions and payments like PF, ESI, Bonus, Gratuity, etc. The concern of employees over their take-home salary is just a windscreen!

Madhu.T.K

Dear Sirs,

A good and very useful discussion. Nowadays, employees are not interested in their savings and are not ready to join organizations when they find higher contributions with respect to PF, etc. Most people are interested in their take-home pay. They are issuing a request letter to the management to restrict their PF contribution to 12% of Rs. 6500 only.

We have taken legal opinions, consulted PF authorities, obtained individual request letters, and submitted the Xerox copies of the individual letters with a covering letter to the Regional Provident Fund Commissioner. We obtained acknowledgment and implemented the process.

We have both types of contribution modes in our organization: 1) 12% on the total basic, and 2) 12% on Rs. 6500. This has been ongoing for more than a year.

Thanks and regards,
Kamesh

As a policy, Co can restrict its contribution to Rs. 6,500 only. If any employee wants to contribute from their salary above Rs. 6,500, a joint request can be made as per paragraph 26(6) of the scheme. CTC in their appointment letter can be adjusted accordingly.

Varghese Mathew
9961266966

Hello,

There is indeed merit in the argument put forth by Madhu as well as Kamesh.

In our case, fixing the salary for PF contribution at Rs. 6,500/- is definitely not a windscreen. We are paying 12% on the FULL SALARY even today and have been paying it right from the date of coverage. We have a single consolidated salary, unlike many organizations with a low basic salary and all sorts of allowances.

The employee with the lowest as well as the highest salary is agreeable to the change. We also have employees with high salaries as well as low salaries, who wish to remain in the excluded category even after proposing to fix the limit at Rs. 6,500/-, though the organization is willing to cover them.

Also, there is a lot of merit in employees wanting to have maximum take-home pay with minimum deductions. One of our employees simply told me, "Sir, in order to reach retirement, I have 25 years to go. But we need to survive today to see retirement and who knows what would be the REAL worth of that retirement corpus when I get it."