Understanding EPF Deductions: Can Employees Opt Out and How Are They Calculated?

Please clarify the following:

EPF Scheme Participation

1. A company has an EPF scheme. An employee submits a letter stating, "I don't desire to join EPF and please do not deduct my EPF from my salary."
Q: Is this possible?

EPF Deduction Components

2. Can EPF be deducted from Basic Salary only, or from Basic Salary plus D.A.?

EPF Ceiling Adjustment

3. From which month should the ceiling be raised to Rs. 15,000?

Thank you.

Please inform me of the current Basic Daily Wages and D.A. for the engineering unit in Mumbai.

Should EPF be deducted from the Basic salary only, or should it be combined with D.A.?

Regards,
Rasik Parikh

PF has to be recovered from the Basic, Dearness Allowance, and also from Variable DA. If your organization is covered under PF, you have to recover it from all the employees. It is statutory. We cannot leave anybody out of this scheme. You need to explain to your employees that it is a social benefit for them and a means of saving for the future. Also, inform them that if they choose to leave (which is not recommended), they will only save their contribution, but if they continue, they will receive both their contribution and the management's contribution. Additionally, they will be eligible for retirement pension. In case something happens before leaving, their family will receive a monthly pension.

It is HR's duty to explain these welfare benefits to our employees. The PF ceiling is currently Rs. 6500.00 only. PF authorities are planning to raise the ceiling amount from Rs. 6500.00 to Rs. 15000 in the future, but not immediately.

Regards,
Alphonse

The Government of India has started the PF scheme to provide social security to the employees of various establishments. The scheme has a host of benefits, including an old age pension. My colleague Sh. Alphonse has rightly mentioned that if the establishment where you are working is covered and registered under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, you have no choice unless you fall into the following exception categories:

- If you are a new employee to your present company drawing a wage/salary above Rs. 6500/- and were not a member of the Employees' Provident Funds Scheme earlier or if a member, you have drawn your PF accumulations. In such a case, you will not be enrolled as a member of the PF scheme. As per Para 33 of the Employees' Provident Funds Scheme, 1952, upon joining a new establishment, you need to give a declaration in Form-2 and furnish information to your employer regarding your earlier company and PF account no., if any. In view of the definition, your basic salary shall be considered for the purpose of the deduction of your PF contribution.

Basic Wages Definition

Regarding your second query, unlike other enactments, the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, has defined "basic wages" instead of wages, which includes all emoluments earned by an employee while on duty but does not include:

- The cash value of any food concession
- Any dearness allowance
- House-rent allowance
- Overtime allowance
- Bonus
- Commission or any other similar allowance payable to the employee
- Any presents made by the employer

Proposal for Salary Limit Increase

As for your last query, EPFO has forwarded a proposal to increase the salary limit and reduce the coverage threshold from twenty persons to ten to the Ministry of Labour for approval.

Regards,
BS Kalsi
Member since Aug 2011