Understanding PF Options: Can Employees Choose Between PF and Higher Take-Home Pay?

Dear All, Please help me with a query. I have all the employees covered and contributing to PF on a complete basic (both employer and employee contribution) irrespective of their basic limit. Now, to increase the take-home pay, management has decided to offer employees who will join certain departments from now on a basic salary of more than 6500 without PF.

Query on Employee PF Contribution

My doubt is, can I have both kinds of employees? For the same CTC, one employee without PF and one employee with PF. However, the act states that an employee can opt out of PF if their basic is more than 6500. So, it is subject to the consent of both the employer and employee. If any employee wants to opt out, then we have to provide them with a structure without PF, and if an employee wants PF, then we have to provide a structure with PF. Am I right in saying so?

Please, this is urgent.

Yes, you can give, but ensure you have a proper tracking system and all documents during the PF inspections. Consider not opting out of PF, as there won't be much of a difference in their take-home pay. It offers over 200% returns for an employee and is the best saving scheme in India.

There is nothing wrong with having two salary structures for the employees, one with PF and another without PF. However, you should understand the purpose of PF and treat it as an investment rather than focusing solely on the take-home salary.

Also, in the case of a fresher from college, it is acceptable to categorize them without PF. But in other cases, most of those who join your company would already have an existing PF. In such situations, you will have to provide PF even if their PF qualifying salary at the time of joining your company is more than 6500.

Considerations for Future PF Adjustments

Another important aspect is that if you are hiring people without PF and distributing the PF element among other components of salary to make the take-home sizeable, consider this: If the PF Organization decides to increase the salary threshold from the present 6500 to Rs 10000 (which the Central Govt has already approved, considering that the minimum wages in various industries across India are more than Rs 6500), then what happens? You will have to provide coverage to these newly employed persons as well. You cannot make any adjustments in the salary, but you will have to bear your contribution as an additional cost. Therefore, any decision should be made after thorough study.

Recommendation on PF Contribution

In my opinion, it is always better to follow the present system. For employees, contributing to PF is an investment as well as a tax-saving benefit. If your concern is about contributing on the complete basic + DA (if any), then you can do one thing: you can reduce/restrict your contribution to 12% of 6500 (or whatever salary limit the Govt. may fix in the future). If the employees are also willing, their contribution shall also be reduced to Rs 780 so that their take-home salary would increase slightly as well.

Regards,
Madhu.T.K

In my opinion, you should follow current practices. Provident Fund (PF) is a significant part of future savings. Not only that, in the event of an employee's sudden death, the nominee is entitled to receive pension benefits and a lump sum amount based on the number of years and other components. Additionally, in many industries, the Cost to Company (CTC) concept is followed. In this scenario, both parts are deducted from the employee's basic salary, incurring no additional costs to the employer.

PF deductions may be skipped if the basic salary is above Rs 6500, but they should not be skipped for employees with lower salaries. Nowadays, in most industries, compliance is strictly adhered to in order to avoid any disruptions in the future from the labor department.

Thanks and Regards,
Sushant

EPF Contribution Options and Best Practices

Our company follows the CTC method. Employees receiving a basic salary of 15,000 or more are given the option of joining the EPF. Many employees wish to invest elsewhere and choose not to join the EPF. In any case, the company pays the same amount.

Should the company continue with the same practice or make EPF mandatory?

Can employees and employers limit their contributions to 15,000 per month if the basic salary is above 15,000?

Can existing employees who are not currently members of the EPF and earn above 15,000 join the EPF now?

What is in the best interest of employers and employees?

Thank you.

Regards

More points...

(6) We have employees whose total CTC is 16,000 and basic is also 16,000 and not covered by EPF. Can we restructure the salary with basic 8,000 and cover them with EPF? Employees have no problem with such restructuring. If necessary, employees can request the employer to restructure their salary components.