Is It Okay to Skip PF Deductions for Employees Earning Above 6500? Seeking Advice

In my company, we are not deducting PF for employees whose basic + DA is above 6500. Is it okay, or is there any problem from PF authorities? Kindly reply.

Regards,
Anuradha

It is correct as per the PF Act of 1952, but for social security, every company pays the PF to all employees in the company who earn above 6500 as well. Why is your company making payments like this? You might have other benefits that the company provides, I suppose? Please check.

Regards,
Srihari

You are liable to deduct PF up to ₹6500. If you do not want to deduct, make it ₹6501 and fill out form no. 11.

Regards,
Daljeet Singh

If the total number of employees in your organization is equal to or more than 20, then it is a must to deduct PF from the month when the staff count reaches 20. This may be the best procedure to follow:

1. Gross Salary minus HRA/Other allowance: If exceeding ₹6,500, then cap at 12% of ₹6,500 would be PF.
2. If point one is below ₹6,500, then 12% of the Gross Salary minus HRA/Other allowance would be the PF.

Hope this explains.

Regards,

Also, I would like to add that these PF norms may vary from one state to another (not sure), so it's better to check with any PF consultant in your location.

If the basic salary plus DA is less than or equal to 6500, employees are liable for PF. If you want to exempt your employees from PF liability, make the basic salary more than 6500/- and get the PF Form No. 11 declaration signed by employees. It should state that they were not a member of the PF & Pension scheme in their last organization. It is mandatory to give PF to employees who were availing this facility in their last organization.

Regards,
Reena

PF Forms Consistency Across India

PF forms will not change from state to state. They are the same throughout India.

EPF Coverage for New Employees

If new employees with a salary above ₹6,500 were PF members and did not withdraw it upon superannuation or migration from India, they shall be covered under EPF.

Regards,
Varghese Mathew
[Phone Number Removed For Privacy Reasons]

Dear Anuradha,

In my opinion, your company should check employees' backgrounds to see whether they were members of the EPF in their previous establishments. Once a person becomes a member of the EPF, we cannot exempt them from EPF. If the employee is a fresher in the job, we can exempt them from EPF by ensuring that Basic + DA > 6500.

Please correct me if I'm wrong.

Thank you.

Dear Anuradha,

According to my opinion, your company should check employees' backgrounds to determine whether they were members of EPF in their previous establishments. Once a person becomes a member of EPF, we cannot exempt them from EPF contributions. If the employee is a fresher in the job, we can exempt them from EPF by ensuring Basic + DA > 6500.

Regards,
Ajay Dwivedi
[Phone Number Removed For Privacy Reasons]

Hi, first, you should check whether your organization has 20 or more employees. If so, your employer needs to register for a PF number. Once the PF office has allocated the number, the employer must deduct the PF amount based on the basic salary + DA.

PF Deduction for Employees

PF deduction for employees is mandatory if the number of employees in the organization is more than 20 and if the salary (basic) is up to Rs. 6,500. If the salary is above this limit, the contribution is not mandatory. However, many companies do this voluntarily to enhance the employee's social security, which also helps in employee retention.

Read similar EPF queries at www.epfindia.com - Top 10 EPF FAQs Part 1 - Investing It!

As per EPF Act Sec 2 (f), the definition for an Employee means any person who is employed for wages in any kind of work, manual or otherwise, in or in connection with the work and gets his wages directly or indirectly from the employer, and includes:

• Employed by or through a contractor in or in connection with the work of the establishment.
• Engaged as an apprentice (other than an apprentice engaged under the Apprentices Act).

Definition of an Excluded Employee

According to the definition of an excluded employee under the EPF Scheme, Sec 2 (f), an excluded employee means:

(i) An employee who, having been a member of the fund, withdrew the full amount of his accumulations in the Fund under clause 69 of the scheme.
(ii) An employee whose pay at the time he is otherwise entitled to become a member of the fund exceeds Rs. 6,500/- per month.
Explanation: Pay includes basic wages with dearness allowance, retaining allowance (if any), and cash value of food concession admissible.

Secondly, you can exclude the employees who are drawing Rs. 6,500/- as basic. You have to get Form 11 filled out by the employees employed at the local office.

The existing employees who are already covered under EPF have to be on the coverable list until they are working with you.

Regarding New Joiners

If they are offered Rs. 6,500 above as basic, they can be treated as excluded employees, provided they should not be a member of the EPF, i.e., even if they are covered elsewhere and have withdrawn the entire EPF/EPS amount before joining with you. You can get Form 11 filled out for these employees.

There are a few things to keep in mind in this situation:

1. If the employee is currently a member of PF, he cannot be deprived of the PF benefits, i.e., he cannot be treated as an excluded employee even if the basic salary crosses 6,500/-.

However, I would like to mention that the resolution has already been presented in the parliament but not yet notified by the house, and hence currently the limit is still 6,500/-. Hopefully, in the coming parliament session, it may be increased to 10,000/-.

2. Now, if he is already a member of the PF, then there is an option for you to contribute a maximum of Rs. 780 p.m. (12% of 6,500). In this case, this rule should be followed for other employees as well.

3. If currently any other employee of yours is receiving more than 6,500 and you are contributing an equal amount (e.g., his basic is 10,000 and you are making PF contribution 1,200 in his case), then you have to make an equal contribution for this employee as well. You cannot treat different employees differently.

4. There is another option available to you. Suppose any other employee is receiving a basic salary of 10,000, and you are making a contribution of 1,200 for him, then you can pass a board resolution and make a contribution of Rs. 780 p.m. for each employee (passing a resolution is applicable in the case of a limited company).

Regards,

P.F. Deduction as a Welfare Measure

P.F. deduction is a welfare measure that is beneficial to employees. Therefore, it is always better for the employer to deduct P.F. by restricting the PF contribution to Rs. 6500/-. Please consider this in the interest of the well-being of both the employer and the employees.

Regards,
D. Gurumurthy
HR & IR Consultant
Hyderabad.

There is no definition for Basic and DA in the PF & MP Act. It is very clear that Rs. 6,500/- is the upper limit, and above that, the employer need not cover the employee for PF. It is simple to understand the Act and how it differs from one state to another. (See Below)

State-wise PF Calculation Examples

For example, in Arunachal Pradesh, the minimum wage per day is Rs. 100/-, and the total wages will be Rs. 3,000/- for 30 days. Therefore, PF will be on Rs. 3,000/- at 12%.

In Andhra Pradesh, the minimum wage will be Rs. 200/- per day, and total wages will be Rs. 6,000/-. Therefore, PF will be on Rs. 6,000/- at 12%.

In Mumbai City, if the minimum wage is Rs. 300 per day and the total wages will be Rs. 9,000/-, PF will be calculated on Rs. 6,500/- at 12%.

In the PF Act, the State MW Act will play a vital role but not the Basic, DA, HRA, etc.

Regards,
hrkpati Sr. Manager (HR & Legal)