Planning a Second Unit: Will Our PF Deduction Plan Face Any Objections?

We are a small-scale industry covered under ESI and PF. Our unit is 25 years old. We have been deducting PF at 12% of Basic + DA all these years.

Planning a Second Unit

We are planning to start a second unit under the same name, where we would like to deduct 12% of Basic + DA, subject to a ceiling of Rs. 6,500 (i.e., Rs. 780 max). Will the PF department object to this practice?

Regards,
Raghuvir

Thank you for your prompt reply, Mr. Vyas. Since the name of the company is the same and PF registration code numbers are also the same for both units, can the department object to two different practices?

Thanks in advance.

Regards,
Raghuvir

Since the 2nd unit operates under the same name, it will be considered as one company, and the PF department would not accept any discrimination among the employees. Moreover, such actions are against the law. You can extend the ₹780 benefit to all employees across the company, as this is acceptable to the PF department.

Thank you for your input, Mr. Anand. Do you have any other response to Mr. Anand's viewpoint? We want to ensure that we are within the purview of the law before we implement this.

Thanks,
Raghuvir

If the company name is the same but the company addresses are different, the PF department will allot a PF sub-code with the original PF code number. For more information, you need to contact your nearest PF department.

Thanks,
Mounesh G

EPF and MP Act, 1952: Membership Eligibility

Please refer to the relevant provisions of the EPF and MP Act, 1952. All such employees, whose pay at the time they are otherwise entitled to become a member of the fund, exceeds Rs. 6,500 per month, are considered excluded employees. The employer is not required to make them members of the scheme statutorily. However, on the joint request of both the employer and the employee drawing pay more than Rs. 6,500, the concerned EPF authority may allow the membership of the scheme, and the employee's contribution may be made on more than Rs. 6,500 per month.

Registration Requirements for New Units

Now in the situation given here, since the establishment registered with the EPFO remains the same, there is no need for separate registration in case another unit is set up which is an integral part of the original establishment.

Compulsory Membership for New Employees

All new employees whose pay at the time of joining the establishment is up to Rs. 6,500 per month will have to become members of the scheme compulsorily. Whereas those getting more than Rs. 6,500 per month, being excluded employees, may have to follow the relevant provision contained in paragraph 26 of the scheme.

Regards

Thank you for your replies, but my question has not been fully understood except by Mr. Anand. The question is: Can we follow the Rs. 6,500 ceiling for one unit and operate without a ceiling for another unit? Both units belong to the same company.

Thanks again,

Regards,
Raghuvir

Unfortunately, if employees have been receiving PF at 12% of basic + DA without a ceiling all these years, it will not be possible to revert to the ceiling of Rs 6,500 now as the employees will not accept a lower contribution.

The second unit is new and under construction, and we would like to implement the ceiling of Rs 6,500 here since all the employees are new.

Question on PF Department's Stance

My question is, will the PF department object to two different practices within the same company?

Thanks again,

Regards,
Raghuvir

My View on PF Contributions for New Employees

Where the employee is appointed as a fresher with a salary below ₹6,500, there is no problem. Where the employee is appointed fresh but his salary is above ₹6,500, you can restrict the contributions up to ₹6,500 if he agrees to PF membership, or you can treat him as an excluded employee. However, if he is already a member of EPF by virtue of his previous employment, you have to continue PF contributions on the higher salary.

If you want to reduce and restrict up to the statutory limit of ₹6,500, you must seek permission from the RPFC by providing reasons.

Regards,
A. K. Chandok
RPFC (Retd.)

The ceiling provided is for the coverage of employees under the Act and not for the units. It will have to be implemented uniformly in all the units. In fact, it applies to all the establishments covered under the Act.

Thank you.
Regards.

Understanding PF Computation Limits

The act provides a ceiling of Rs. 6,500 for the computation of PF. Nothing in any act requires you to pay more. However, nothing in the act prevents you from paying more. Again, nothing in the act requires you to extend any additional payment to every employee.

In view of the above, you can very well have different rules for your two plants. The department will be on a wrong legal wicket if it tries to get you to pay PF higher than Rs. 780 per month. In fact, you are allowed to bring down the PF rate at your existing unit also. There are cases that have been reported on this forum earlier. You can do a search for it.

Dear Raghuvir, you need not use different rules for the companies belonging to the same management. Therefore, you can do the same as you follow for the first unit, as it will not pose any problem. You can contact your PF office and clarify with them whether the second unit can be covered under the same code or if they will allot any sub-codes.

Hope your doubts are clarified.

Regards,
N. Ragavendiran

Dear Mr. Ragavendran, It is not a question of not wanting to use two rules. We would like to utilize the ceiling limit of Rs 6500 for the new unit with new employees.

Query on PF Rules for Different Units

My query is whether we can apply different rules for different units of the same company with the same code. Will the PF department object to this practice?

Thank you,

Regards,
Raghuvir

Ceiling of Rs. 6,500/- is as per the stipulated norms. In one unit, you are not following the ceiling criteria. However, it is better to get a declaration from those people whose Basic + DA is above Rs. 6,500/- wherein they should authorize the company to deduct 12% PF without applying the Rs. 6,500/- ceiling.

Regards.

Both units belong to the same company. If they are in different locations, you need to obtain a sub-code from the nearest EPF office. The ceiling amount should be the same in both branches.

Thanks,
Anand