Employer's PF Contribution Missing in CTC: Can They Deduct 24% Without Notice?

Hi, our company has recently started with the EPF scheme. My basic pay is exactly 6500/- INR. The employer's contribution to PF is not mentioned in my offer letter or monthly payslip. Can the employer directly start deducting PF at 24% per month without any changes to the overall CTC?

Understanding PF Deductions and Employer Contributions

The PF rules specify that the salary cannot be reduced to pay the PF amount. So, while a 12% deduction from the employee's side will be deducted from your salary, the employer's 12% contribution cannot be deducted from your salary. If your CTC includes other items of perquisites and reimbursements that are not shown on the salary slip, they can adjust it as they have already decided your CTC and do not want to increase it. However, they cannot lower your gross salary.

Hi Ashish, let us make things a little simple. I am sure it would have been a little confusing.

Understanding Your PF Contribution

Your Basic = 6500, and so as per the rule of 12% from each side, 780 + 780 ought to be deposited into your PF account. One of the 780 is your contribution (deducted from your gross). The other 780 is their contribution (which might have been included in your CTC but it won't be deducted from the gross).

Salary Components Explained

Now let me explain the fundamentals in a basic way. Since I do not know the components of your salary and how your company calculates, I would take a very basic and general format followed:

- Basic:
- HRA:
- Medical:
- Food:

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GROSS

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Your monthly Gross * 12 = Annual Gross. Your Annual Gross is not your CTC. Your CTC is more than just the gross. People include several things in CTC, which is the Cost To Company:

1) Annual GROSS
2) Gratuity (though you are eligible to receive gratuity after 5 years of service, your company is liable to deposit the annual contribution, and it is a cash outflow for your funds. Hence it is added to CTC)
3) Their PF contribution, i.e., 12 * 780. They are actually to shell out more money than just the 780 Rs. They ought to pay the admin charge towards PF and pension account, they have to pay for the health insurance scheme and its account handling charges. So this figure might have been quoted higher accordingly. It depends from company to company if they wish to add all single pennies they spend on you as their CTC.

I hope this is able to make you aware that CTC is not just about the Gross.

Calculating In-Hand Salary

When we calculate In Hand:

Gross - Professional Tax - TDS - PF Contribution (Your side) = In Hand.

(Please note that if you have any dues to clear to the company, the company can deduct that as well. For example, EMIs of loans or advance salary taken from them)

So in your salary, they will show you 12% Basic as Deduction and the other 12% Basic as a contribution on their part.

Hope this was sufficient to clear your doubts.

Regards

Thanks for the quick replies. Can you please cite any legal document outlining the points you mentioned?

Legal Implications of PF Registration

Also, the company obtained PF registration just last month. However, they claim that since they applied for PF last July, employees are expected to deposit the entire backlog PF contribution for the past months of employment immediately. Is this a legal request? I would greatly appreciate any legal documentation to support this, as most of my colleagues are extremely concerned, considering their total backlog amounts to around a month's entire salary.

Thanks in advance.

I believe PF contributions should be made from the time the company becomes eligible for the act. However, seniors may provide better guidance. Another point to note is that there is no need to worry. Each of you will have a PF Account Number. All PF contributions and the interest earned are tax-free. This serves as a retirement solution and a fixed deposit for later in life. You can always track the amount deposited in your PF Account.

Key Points of the PF Act

I have shared a link to the PF Act articles and highlighted the key points below:

1. PF Act applies to any organization with more than 20 employees.
2. Once covered under the PF Act, the company remains covered even if the employment drops below 20 later.
3. The employer cannot reduce wages to contribute to your PF without affecting your gross pay. Only a 12% deduction is allowed for your contribution. The company’s contribution can be adjusted from other components without reducing your gross pay. If your gratuity, bonus, etc., are part of your CTC, such deductions do not violate statutory compliance.

http://www.epf.net.in/epf-act-and-rules.htm

http://epfindia.com <link fixed>

Regards.

Here is a simple and to-the-point answer to your query.

Para 31 of Employees' Provident Funds Scheme 1952

Para 31: Employer's share not to be deducted from the members

Notwithstanding any contract to the contrary, the employer shall not be entitled to deduct the employer's contribution from the wage of a member or otherwise recover it from him. From the above, it is very clear that your employer cannot deduct the employer's share from your salary.

My humble request to all the members of the forum is that they should give responses to any query that are to the point and not out of context. I do not know whether I can make such a request. Still, I do it since the members respond without any study and out of context. In one of the threads on PF earlier, I had to write that there is a need for basic inputs/training sessions for the members.

Regards.