Navigating PF Deductions, Gratuity, and Overtime: How Should We Calculate These?

Understanding Minimum Wages and PF Deductions

As we all know, minimum wages should be equal to Basic + D.A. Please provide me with suggestions.

1. If an employee's Basic + DA is 9500, it means it exceeds the PF ceiling limit of 6500. For instance, if Basic is 6200 and DA is 3300, the total becomes 9500. I have a simple question regarding this issue: many professionals argue that PF is applicable on Basic, while some prefer Basic + DA. In the given salary scenario where Basic + DA equals 9500, exceeding the 6500 PF ceiling limit, but Basic alone is less than 6500, can you clarify whether PF deduction will be based on Basic only and why? Considering we also provide DA, could we be exempt from PF deduction?

Overtime Calculation

2. If we provide Basic, DA, HRA, and Conveyance, how should Overtime calculation be done – based on Basic only or Basic + DA (both)?

Gratuity Calculation

3. When an employee completes 5 years of service, they become eligible for gratuity. Our compensation structure includes Basic, DA, HRA, and Conveyance. Should the computation of gratuity be based on Basic only or Basic + DA (both)? I have heard conflicting opinions on this matter – some say gratuity should be paid on Basic, while others argue for Basic + DA, especially if the employer's compensation structure includes Basic, DA, HRA, and Conveyance.

Your cooperation in this matter would be greatly appreciated.

Thank you.

Answer for the query cited below:

EPF and Minimum Wages

1) It is true that minimum wages are the component of Basic + DA. Secondly, EPF is applicable to the same. As far as the ceiling of Rs. 6500/- is concerned, it is only for EPS/EDLI. If the wages fall under that category, the deduction must be made. Once anyone becomes a member of the EPF/EPS scheme, the opportunity of the same can't be withdrawn during the service period. Secondly, it solely depends on the employer whether he is willing to deduct the EPF on actual Basic + DA or limit it up to the ceiling of Rs. 6500/-. If the EPF deduction is on actual Basic + DA, then the EPS/EDLI contribution should be limited up to Rs. 6500/- or limited to Rs. 6500/-, whatever the Basic may be.

Overtime Calculation

2) The calculation of OT will be on gross salary instead of Basic + DA and should be twice the rate of wages. The formula should be Gross salary/26/8 * OT hrs. * 2.

Gratuity Computation

3) Computation of gratuity should be Basic + DA (actual), and the formula should be Basic + DA / 26 * years of service * 15. The payment of the same should be after the completion of 5 years of service.

Thanks & Regards,

Sumit Kumar Saxena

My question was, "My Basic is 6200 and DA is 3300, totaling 9500. In this case, can we be exempt from PF or not, as BASIC + DA is showing more than 6500? Am I legally compelled to deduct PF?

Overtime Calculation

Secondly, I have heard that most of the time, overtime is calculated on Basic + DA (twice the working hours). Is it a company policy that they give overtime based on gross salary?

Thanks, Mr. Sumit.

Regards.

PF Calculation on Basic and DA

PF is always calculated on Basic & DA (as you have DA in your salary structure). So, PF will be 12% of (Basic + DA).

Exemption from PF

If the employee has never been a member of EPF, meaning PF was not deducted in their previous company and their basic is more than 6500, then they have the option to become a member of EPF or not. However, if they are already an EPF member, then you have to deduct their PF. You have the choice to restrict their PF to 780 (i.e., 6500 * 12%).

It means that if an employee has never been a member of PF earlier and his starting Basic + DA is > 6500 (Basic 6200 and DA 3300), as per your suggestion, he is exempted from PF deduction. It does not matter even if his Basic is less than 6500 because his company is also giving DA to him. If his BASIC + DA is > 6500, i.e., 9500.

Am I right now?

Thanks

It has come to my attention from sources that the ceiling for PF deduction is now ₹15,000 instead of ₹6,500, effective from 1st April 2014. Is this true?

Regards,
Kamlesh Pandya (Proprietor) Sai Industrial Services