New Company Deducting PF Without a PF Number: Is This Legal?

I have recently joined a newly set-up company. In my salary, they are deducting PF. I recently found out that they don't have a PF Number. Is it legal for them to deduct PF from my salary or not?

Regards,
Deepika Vijay

Questions about PF Deductions

There are two questions here:

1. How many people are working there?
2. Are they legally liable for PF?

If they are liable for PF and have applied or are in the process of applying for a PF number, then they can deduct from your salary. If they are not liable or have not started the process of applying for a PF number, then this is illegal.

Regards

While endorsing Saswataji, I would like to add the following:

Legal Implications of PF Deductions Without Allotted Code

If your company has not been allotted a PF code by the department, the company cannot make deductions towards PF. If it is deducted, then it is an unauthorized deduction for which the company is liable. Section 7(2) of the POW Act states that deductions from wages shall be made only in accordance with the provisions of this Act and may only be of the kinds listed thereunder.

I have experienced a case where a company made deductions towards PF contributions and kept it aside until a PF code number was allotted by the department. The company applied for the allotment of the code immediately after the deduction was made. When the inspector visited the company upon receipt of the application, he found that the deduction had been effected. He immediately filed a complaint for misappropriation of money. I need not mention here the repercussions of this complaint.

I hope that the proper message is conveyed to all.

Regards.

I agree with Keshav Korgaonkar that the deduction of EPF by the employer without having an EPF code is illegal and an offense.

Thank you, Sir, for the responses. I was discussing this matter with HR as well. He is saying it's under process, and only the inception is left for verification. The company has received the authority from the PF department to deduct the PF from the salary. They will obtain the PF number after all verifications and paperwork are completed.

Sorry, I disagree. Once a company has filed an application for a PF number, they can deduct the amount from the salary. It takes 3-4 months to get your number. In that case, the employer will be required to deduct 100% of the next month's salary to pay PF, which does not make sense. Also, if a person leaves in the meanwhile, what happens? The employer is still required to pay the PF. Why should he pay out of his pocket?

Once the number is allotted, he must pay the entire money that was collected. This is not an offense.

"I agree with Keshav Korgaonkar that deduction of EPF by the employer without having an EPF code is illegal and an offense."

It is undoubtedly illegal to deduct the PF amount without authorization by the department, and verbal authorization is not valid. The company needs a PF number through which it can deposit the amount of PF deductions from the salary of its employees. However, you should also keep in mind that you cannot afford to destabilize your relations with your company over small matters. You alone should not contest it. You should discuss this matter with your colleagues and then represent it to the company on a collective basis so that you may get the desired results. The amount of PF is not significant enough for you to risk fighting with your company all alone.

Moreover, if the number of employees in the company is 20 or more, the company is statutorily required to obtain a PF number, deduct PF, and deposit it regularly. If the number of employees is less than 20, then it is a total fraud, and you should address the matter immediately. The company is not applying for a PF number and is misusing or rather cheating with the PF fund.

Regards,
Mahavir Mittal

I agree with Saswatabanergee. We started the company in December 2011. From the payroll of December 2011, we deducted PF. We applied for PF (effective from December 2011) in January 2012. The PF Authority carried out an inspection for coverage and allotted the code number in March 2012. After the allocation of the PF code, we deposited the contribution.

We have to apply for PF coverage in the very next month of the payroll. This shows that we do not have the purpose to avoid the PF rules, and the delay in the remittance of contribution can be justified.

Regards,
S D Patil

EPF Code and Salary Deductions

If the company does not have an EPF code, no deduction of EPF from the employee's salary can be done. If the company is managing its own EPF trust, then it's acceptable.

Thanks & Regards,

Sumit Kumar Saxena

As per the provisions under the Act, any establishment falling under the purview of the Act must comply from the date of coming under the purview of the Act, without waiting for the allotment of a code number, to avoid penal damages as well as interest on belated remittances. In case the deductions are not made, the employer will have to deposit both shares from their own account.

Thus, in my view, the employer has taken the right step to deduct PF contributions but must deposit the same every month by the due date, without waiting for the coverage letter from the Office of RPFC.

Regards,
Chandok AK
RPFC (Retd.)
[Website: www.akchando.com](http://www.akchando.com)

@Saswata Banerjee and AK Chandok,

We all know it takes around six months to get an EPF Employer's code. If the employer deducts the contribution from the very beginning, then who will pay the interest on the deducted amount for the period of six months when the contribution amount remains with the employer?

Regards,
Kamal

Tell me the other way around: If you don't deduct and then after you get the number you start to deduct, who will pay the interest then? Interest computation has nothing to do with the date when you deduct. It's with the date you pay.

Incidentally, if you deposit within 30 days of getting the number, you do not have to pay interest (to the best of my knowledge - I know we didn't pay when we got our PF number). Chandok Saab, please confirm that we don't get charged interest until we get a PF number.

As far as I know, if a deduction is made by the employer and not deposited with the EPF, it amounts to a default in payment of contribution under Section 14 (AB) of the EPF and MP Act, 1952. This is considered a cognizable offense.

Regards,
Kamal

Employee Claims for Full Interest from EPF

What if the employee claims the full interest from the EPF department from the date of their first deduction? Legally, they are entitled to the interest from day one of contribution.

Regards,
Kamal

Employer's Responsibility for PF Contributions

The employer must deposit the contributions every month by the due date under the Applied For Code Number. It is the duty of the RPFC to allot a code number within a few days, if not within 3 days, as per the earlier instructions of the EPFO Head Office.

In my opinion, the interest is to be paid by the RPFC if the amount is deposited regularly on time, even if the code number is allotted late. In case of any dispute, the matter is to be resolved by the RPFC on the principles of natural justice and as per provisions under the Act.

Regards,
Chandok AK

In the new online system, can we deposit without having a number? Is there a provisional number? I assume it no longer takes 6 months to get the code right?

In the new online payment system, you cannot deposit the contribution unless you have an EPF Code. There is no provisional number available. Obtaining a new EPF code still takes 4-5 months.

Regards,
Kamal

First of all, find out from the company whether they have opened the account or are in the process of opening the account. If they have opened the account, then there is no problem. If they are in the process of opening it, ask them for proof. Don't orally believe someone.

Legality of PF Deductions Without a Company Number

It is illegal to deduct PF without obtaining the company's or establishment number. Let us take an example. The collection is done in advance, but the number is not allotted. Before getting the number, if there is a gap of more than one or two months, and if the contributor dies, the family loses the pension provision. Is it not? For a pension, one-month depositing is sufficient in case of the death of the contributor. If I am wrong, correct me.

So, tell me: In the example you have cited, if the company has not deducted the amount from the salary because the number has not been allotted, how does that help the employee who died or their family? The employee has already passed away, but the employer is still liable to pay the amount to the PF department. How exactly will he pay it? From whom is he going to deduct the amount? From their full and final settlement?

You are right in the situation you have referred to. Hence, the correct approach is to obtain the number as early as possible and then proceed with deductions, as it has a bearing on benefits. Except for new organizations, most others already possess a number. Therefore, for the benefit of the contributor, they should allocate the number accordingly.

Situation with Unallocated Numbers

Further, in my presentation, the collection is done from the worker with no number allotted. If the worker then passes away in the meantime, what is the situation?

In my opinion, if the establishment had applied for a code number soon after coming under the Act, had deposited the dues in time, and had submitted the returns by quoting the code number as "Applied For," if any death takes place, the RPFC is bound to grant benefits after allotting the code number as the delay is on the part of the department and not the employer. However, the RPFC will investigate the matter relating to the death from a vigilance point of view to determine the genuineness of the claim.

Regards,
AK Chandok

May I know how much contribution should be made by the employer in the EPF account? Or in the PPF account, can my entire salary be deposited?

I am in a real estate broking firm based in Noida, U.P., where the confirmed employees are 15-20, with 4-5 in the backend and the rest in the sales department who can resign anytime. My query is their Basic+DA is more than 6500, and we have never applied for any PF Code or deducted any amount from employees. Let me know the format where employees can avoid PF contribution as per their wish.

Regards,

If the number of back-end as well as front-end employees is 20 or more, you need to obtain a PF number. There may not be a single employee with a salary of less than 15,000 per month; even then, you need a PF number and must submit a statement of Nil. No avoidance.

Regards,
Mahavir Mittal

Thank you for the above information. I have another query: a few employees had PF deductions in their previous company. If PF deductions were done in their previous company, do they need to fill out the PF forms again in the new (current) company, or can they opt out of PF since their Basic + D.A. is more than ₹6,500 per month in the new company?

Dear Yedol,

Few employees' PF deductions have been done in their previous company. If a PF deduction has been done in their previous company, do we have to fill out the PF forms again in the new (current) company, or can they opt out of PF as their Basic + D.A is more than 6500 P.M in the new company?

PF Membership and Transfer Process

Once a person is a member of PF, they remain a member until the end, unless there is a break in their service for more than 2 months and they have settled their previous PF account. A member of PF has no option to opt out of PF. In new employment, they have to submit Form 13 for the transfer of their previous accumulations. Form 2, i.e., Declaration & Nomination, needs to be filled out. Form 11 is to be collected from all employees.