Is It Legal to Stop PF Deductions by Raising Employee Salaries Above ₹7,000?

Hi all, I have a query. We have 100 employees at one of our sites, and previously, we were deducting PF and ESIC. Now, we want to increase their salaries and remove the PF deduction. My question is, is it legal to remove an employee from PF deduction by increasing their basic amount to ₹7,000? Please reply to me on priority.

Once you start deducting PF from the employee, you must continue to do so even if their basic pay increases. PF contribution is a must.

Thanks & Regards,
Srilakshmi Korukonda

Thank you, Sri Lakshmi garu. It helps a lot. If we want to stop their PF contributions, we can treat them as new employees by issuing a new employee code and all new documentation, including obtaining signatures on Form 11 and Form 2. In this process, their date of joining will also change. Please share your valuable opinion.

Regards,
[Username]

That is not advisable. It affects your employees, and if there is any inspection, you'll unnecessarily fall into trouble. It will have adverse effects. It's better to continue as usual.

Thanks & Regards,
Srilakshmi Korukonda

Kindly read Para 26A of the EPF Scheme, which clarifies the position. It is reproduced below for ready reference:

26A. Retention of Membership

(1) A member of the Fund shall continue to be a member until he withdraws under paragraph 69 the amount standing to his credit in the Fund or is covered by a notification of exemption under section 17 of the Act or an order of exemption under paragraph 27 or paragraph 27A.

Explanation: In the case of a claim for a refund by a member under subparagraph (2) of paragraph 69, the membership of the fund shall be deemed to have been terminated from the date the payment is authorized to him by the authority specified in this behalf by the Commissioner irrespective of the date of the claim.

(2) Every member employed as an employee other than an excluded employee, in a factory or other establishment to which this Scheme applies, shall contribute to the Fund, and the contribution shall be payable to the Fund in respect of him by the employer. Such contribution shall be in accordance with the rate specified in paragraph 29:

Provided that subject to the provisions contained in sub-paragraph (6) of paragraph 26 and [in paragraph 27], or sub-paragraph (1) of paragraph 27-A, where the monthly pay of such a member exceeds [six thousand and five hundred rupees], the contribution payable by him, and in respect of him by the employer, shall be limited to the amounts payable on a monthly pay of [six thousand and five hundred rupees] including [dearness allowance, retaining allowance (if any) and] cash value of food concession].

Two things are clear from this paragraph: (1) an employee who is already a member of the EPF will continue to be a member even if his pay crosses the monetary limit set by the Scheme. (2) However, the contribution shall be limited to the pay ceiling limit.

Once an employee becomes a member of EPF/EPS, you can't stop remittances until their resignation. However, you can make the payments up to the ceiling amount of Rs. 6500/-.

Regards,
Srinivas B

Dear Seniors,

I have a query, please advise: once an employee becomes a member of EPF/EPS, you can't stop remittances until their resignation. However, you can make payments up to the ceiling amount of Rs. 6500/-. It is clear now.

Question on PF Deduction with Change of Employer

My question is, if the same employee changes companies, for example, my basic was 6500 in the previous company with a PF deduction of 780, and I change to a new company where my basic is 7000, in that case, is the new employer restricted to deduct my PF, or do they simply apply the ceiling limit in my case?

Thanks & Regards,
Jeetu