Can Employers Increase Their Provident Fund Contributions? Seeking Clarity on PF Rules

Dear Members, Hope you are all doing well. I have been reading a lot about the Provident Fund (PF), and my basic understanding is as follows:

Employee's Contribution: 12%
Employer's Contribution: 12%

The Employer's contribution is further divided into 8.33% for the pension scheme and 3.87% for PF. My question is, can an employer choose to contribute more to the PF?

I have come across several posts, but it has been quite confusing for me. I would really appreciate some clarification.

Regards,
Adhip

One can opt to contribute more, but the employer also has to approve the increased contribution.

Legal Provision on EPF Contributions

The legal provision in this regard is contained in Para 29 of the EPF Scheme. It is as follows:

"Para 29. Contributions

(1) The contributions payable by the employer under the Scheme shall be at the rate of ten percent of the basic wages, dearness allowance (including the cash value of any food concession), and retaining allowance (if any) payable to each employee to whom the Scheme applies:

Provided that the above rate of contribution shall be twelve percent in respect of any establishment or class of establishments which the Central Government may specify in the Official Gazette from time to time under the first proviso to subsection (1) of section 6 of the Act.

(2) The contribution payable by the employee under the Scheme shall be equal to the contribution payable by the employer in respect of such employee:

Provided that in respect of any employee to whom the Scheme applies, the contribution payable by him may, if he so desires, be an amount exceeding ten percent or twelve percent, as the case may be, of his basic wages, dearness allowance, and retaining allowance (if any) subject to the condition that the employer shall not be under an obligation to pay any contribution over and above his contribution payable under the Act."

From the above, it is clear that only the Employer Share (ER) is fixed by the law. The Employee Share (EE) will be equal to ER. Now, in the case mentioned by you, if the ER wants to contribute more, the EE must also be willing to do so. Otherwise, the Employer himself has to bear the difference. For example, if the ER wants to contribute 20% instead of the statutory rate of 12%, the EE should also be willing to do so. Otherwise, the ER has to bear the difference of 20 - 12 = 8%. He will, in effect, be paying 20 + 8 = 28%. The employee will be contributing only 12%.

Hi, thanks for the information. This will be really helpful in my understanding in detail. I had one more doubt: if an employee wants to increase the share of contribution, what is the maximum limit for that, and what form does he/she need to fill?

Regards,
Adhip

There is no ceiling for increasing the Employee's (EE) contribution. I am not aware of any prescribed form for intimating the increased contribution. I presume a simple intimation to the employer may be enough. However, if someone wants to make a contribution above the wage limit of Rs. 6500/-, then a joint declaration is required as there will be an obligation on the part of the employer to pay the administrative charges above the wage limit of Rs. 6500/-.

Under EPF:

- The contributions are payable on a maximum wage ceiling of Rs. 6500/- by the employee and employer.
- The employee can pay at a higher rate, and in such a case, the employer is not under any obligation to pay at such a higher rate.
- To pay contributions on higher wages, a joint request from the employee and employer is required [Para 26(6) of EPF Scheme]. In such a case, the employer has to pay administrative charges on the higher wages (wages above 6500/-).
- For an International Worker, the wage ceiling of 6500/- is not applicable.

As per my knowledge, there are some PF conditions:

1. EE-0 ER-0
2. EE-Ceiling ER-Ceiling
3. EE-Actual ER-Ceiling
4. EE-Actual ER-Actual

Most companies will follow the 2nd option, where regardless of the Basic amount, only ₹780 should be deducted from the employee (EE), and the Employer Contribution (ER) will be based on the ceiling. If the Basic is less than ₹6500, the calculation will be based on the actual amount. For example, if the Basic is ₹3500, then the deduction for both EE and ER will be ₹3500 * 12%. If the Basic is more than ₹6500, only ₹780 will be deducted from both EE and ER.

In the 3rd condition, if the employee is contributing based on their actual Basic amount (e.g., Basic is ₹20000, then the deduction will be ₹20000 * 12%), the employer will still contribute based on the ceiling (e.g., ₹6500 * 12%). However, most companies typically follow the 2nd option.

I hope this clarifies your concept.

Attribution: https://www.citehr.com/494698-pf-ded...#ixzz32c6vMQqe

Alternative Contribution Method

There is one more way: Employee contributing more than 12%, but the employer contributing only 12%.

Regards,
Varghese Mathew