Can Employers Deduct Both Provident Fund Contributions from Employee Salaries? Seeking Clarity

Provident Fund Contribution Query

I have a question regarding the deduction of the provident fund. According to the Provident Fund rules, the contribution is expected to be 12% from both the employee and the employer, based on the basic salary. Is there a rule that allows the employer to deduct both contributions from the employee's salary?

Currently, I am employed in a private IT software company, working in HR. We are about to start deducting the provident fund, but our boss insists that both the employee and employer contributions will be deducted from the employee's salary. Could someone please help me understand the rules of Provident Funds?

Thanks,

Himani

The answer to your query is a big NO. It is startling to know that many companies have HR departments without any basic knowledge of labor laws.

Regards,
Varghese Mathew

Hello Varghese, you are right. Actually, I have the basic knowledge that we learned in our education regarding this issue. I have informed my boss that it may not be possible, but he insists that it is working. I just want to understand the situation better.

Regards,
Himani

Dear Himani,

You have issued an appointment letter to the employee. In this, the salary part has been mentioned. In the CTC, you have included the PF component, which is 12% of Basic Pay for EPF. Out of this 12% of Basic Pay, 8.33% or Rs. 541, whichever is less, is to be deposited. The remainder will also need to be deposited along with 12%. Hence, it has to be deducted from the employee's salary only.

Understanding CTC

CTC means Gross salary plus expenses incurred by the employer on behalf of the employee.

Please let me know if you need any further information in this regard.

Warm regards,
Pranab Chakraborty
[Phone Number Removed For Privacy Reasons]

It is good to know that you have basic knowledge. Then, show paragraphs 31 and 76 of the Employees Provident Fund Scheme to your boss.

Regards,
Varghese Mathew

If your company is following the CTC concept, then it is correct; otherwise, it is absolutely wrong.

Understanding CTC and Provident Fund Contributions

CTC = Gross Salary (Basic Salary + DA + Allowances) + Employer Contribution to PF + Employer Contribution to ESI + Annual Benefits (LTA, Medical Reimbursement, Bonus, Fixed Incentive), etc.

PF should be calculated on Basic Salary + DA, subject to a maximum of Rs. 6500/- or the basic salary, whichever is less. (This limit can be extended at the discretion of the Company/Management).

Hence, the PF contribution from the employee is: 6500 x 12% = 780. The employer contribution is: 6500 x 8.33% = 541 + 6500 x 3.67% = 237 (Total of 780).

Praban ji & Beem ji, CTC means Cost To the Company, i.e., expenses that are incurred by the company for the employee. Isn’t it? When the employer's contribution is shown in the CTC, why should the employee pay it? Or if the employee is paying it, how can it appear under CTC? Isn't that cheating?

Understanding Employer and Employee Contributions Under EPF & MP Act, 1952

If employer and employee contributions are to be borne by employees alone, then it is totally against the statutory provisions under the EPF & MP Act, 1952. I suggest you conduct a study or class about this Act with your boss and discuss the impact of the current practices followed by your establishment regarding this issue.

Thanks,
R K Nair