Is Provident Fund Optional for Employees with ₹30,000 Take-Home Pay? Seeking Advice from HR Peers

Hi, can anyone please confirm whether PF is optional for an employee whose take-home pay is ₹30,000 per month? We are facing an issue where an employee is not willing to avail of the PF benefits. Our total number of employees is 23 members. Please suggest to me.

Hi, as per PF rules, if an employee's basic salary is less than the ceiling point of ₹6,500, then PF deduction is mandatory. If the basic salary is more than the ceiling point, then it is optional.

PF Membership Options for Employees

It is not like that. If an employee with a salary above ₹6,500 per month is not already a PF member, they have the option to join or not join PF. However, if they were a member, they have no option; they must be in EPF.

Regards,
Varghese Mathew
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Option for Employees to Opt-Out of PF Deduction

If employees don't want PF deduction, there is an option of Form 11 (Declaration by a person taking up employment in an establishment in which the Employees' Provident Fund & Family Pension Fund Scheme is enforced). By submitting this form, PF deductions will not be made, and the employer will also not need to contribute to that individual.

AADI & Kanimsw, please read paragraph 26 along with paragraph 2(f) of the Employees Provident Fund Scheme 1952 for the answer to your doubt. This has been discussed many times in this forum.

Regards,
Varghese Mathew
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Hi Mathew, I went through that. Actually, if an employee has not closed their PF account and has not withdrawn their PF, then they should remain a member. If they have closed the account and withdrawn the money, then they have the option to opt out of the PF through mutual understanding between the employee and the employer.

For Your Reference:

Employees Required to Join the Fund

The following employees are required to join the fund (Para 26 of EPF Scheme):

• (i) Every employee employed in or in connection with the work of the factory or other establishment to which the EPF Scheme applies, except an excluded employee drawing a salary exceeding Rs. 6,500.00 p.m. {Para 26(1)}.

• (ii) Every employee is required to join the fund from the date of joining the factory or establishment {Para 26(2)}.

• (iii) Every excluded employee, on ceasing to be an excluded employee, i.e., makes an application jointly with the employer.

Definition of Excluded Employee

Read the definition of an excluded employee. Only employees who withdrew PF upon retirement after 55 years or those migrating from India to settle abroad can be claimed as 'excluded' employees. This does not apply to those who have resigned and withdrawn PF.

Regards,
Varghese Mathew

As per PF rules, if an employee's basic salary is below the ceiling point of ₹6,500, PF deduction is mandatory. If the basic salary is above the ceiling point, then it is optional. However, if an employee has had PF deductions in a previous company, they are eligible or mandatory for PF deduction in their current and future organizations. In the case where an employee is starting their first job with a basic salary higher than ₹6,500, it is optional for them to choose whether they want PF deductions or not.

Provident Fund (PF) Requirement for Freshers

PF is optional for freshers who have never had a PF account in the past. However, if you have previously held a PF account, it becomes mandatory for you to continue with PF investment.

Regards

Do you think that for a fresher with a basic salary of less than Rs 6500/- per month, PF is optional? No, it is not optional.

Regards,
Varghese Mathew

Yes, it is. However, it's not documented, but many reputed companies are offering this. You are correct, no doubt.

As per the EPF Act, every employee should be a member of PF and eligible for EPF benefits, contributing to the EPF fund. An employee who does not want EPF benefits should have opted out at the beginning of their career and informed the employer and EPF office using a prescribed form, i.e., Form 11. By that time, their basic wage must be above ₹6,500.

Once an employee becomes a member of EPF, they should remain a member until superannuation, regardless of job switches or salary enhancements.

It is beneficial for the member to have savings with an impressive interest rate and without any tax imposition on a certain amount. Try to convince employees by explaining all the EPF benefits.

Regards,
Ravichandra

Thank you for your suggestions. However, I am currently facing a new issue, and I would appreciate your assistance. Our organization is one year old, and we have not yet registered for PF and ESI. Recently, we have reached 20 employees. We are now in the process of registering for PF and ESI. However, most employees have a basic salary exceeding ₹6,500 and are not interested in availing PF and ESI benefits. If we exempt these employees, we will have around 10 remaining members.

In this situation, I am unsure whether I need to proceed with PF registration. Is it mandatory?

I see that the discussion has gone all over the place. The rules for whether PF is compulsory can be summarized as below:

1. For all new employees, if their salary is less than ₹6,500 per month, then PF is compulsory.
2. For any new employee with a salary above ₹6,500 per month, who does not have an existing PF account, they can opt out of PF by filling Form 11.
3. An existing employee cannot opt out of PF once they have a PF account.

You need to follow the rule based on what the starting salary of the person was. Salary is defined under the PF Act as Basic + DA.

Mandatory PF Membership for Freshers

For freshers who are taking up employment for the first time, it is compulsory to become PF members. The ceiling of PF is likely to be enhanced, as shared by the Minister of State for Labour in the previous Ministry.

Options for Existing PF Members

Those who were already members of PF and are currently employed with a higher salary have the option to become PF members by contributing to the PF at the stipulated percentage of the ceiling limit.

Voluntary Provident Fund (VPF) Contributions

Those who wish to invest more in PF are also free to contribute to PF as VPF (Voluntary Provident Fund) contributions.

Thanks,

R K Nair

Hi, thanks for your suggestions. But here I am facing a new issue; kindly help me out. Our organization is one year old. Till now, we haven't made any registration in PF & ESI. Recently, we have reached 20 employees. We are in the process of PF & ESI registration. However, most of the people have a basic salary exceeding ₹6,500, and those employees are not interested in taking PF & ESI benefits. If we exempt those employees, the remaining workforce will be around 10 members. In this situation, do I have to make PF registration? Is it mandatory?

PF Registration Requirement

You have to do PF registration. You can exempt employees whose Basic + DA + cash value of food provided is greater than ₹6,500. As per the PF Act, you have to register for EPF if you have 20 or more employees. It is better to start the registration before you reach 20 employees' strength on your muster roll. It is not the case that if you have contributing members of 20 or less, the total figure should be 20 (Exempted + not exempted) for PF registration to be mandatory.

In that case, where will the amount go from the employer's side as the employer is supposed to contribute the amount along with the employee's contribution? Could you please help?

As per my knowledge, PF is compulsory for all employees in an organization if their strength is more than 20. The wage limit is ₹6500 and above, which is an option for management. We cannot exclude PF. If you want to seek exclusion, then you have to register your organization as a PF exempted organization. To do so, your organization should have its own PF scheme that takes care of all the benefits available in the PF scheme. Only then can an employee seek exclusion using Form-11.

Another scenario where an employee can be excluded from PF is if the employee is already benefiting from the PF scheme.

Please correct me if I'm wrong in any of the above statements.

Kind Regards,
Shreyas

It is not necessary for him to contribute his salary to PF because his basic salary ceiling is above the PF basic limit. Now, the government has increased the PF ceiling from ₹6,500 to ₹15,000. His employer has requested the PF department that he contributes his basic salary, as written on the company letterhead. This would make it possible for it to be treated as VPF.

I agree with this reply. This is the correct answer. The PF ceiling is 6500 Rs, and above that, it depends on the employee whether to contribute or not.

If an employee's Basic + DA is more than ₹6,500 per month, the employer wishes to know whether to deduct the PF or not. Another option is to fill out Form No. 11 for employees who don't want to have PF deducted, but all the previous PF must be withdrawn.

Hope this will help you.

Regards.

Many of the comments here are misleading, so I am forced to repeat what I have said before.

Exemption from Provident Fund (PF)

Exemption from PF is only for an employee whose starting salary in the organization is above ₹6500 and who did not have any existing PF account when they joined the company. If either of these conditions is not fulfilled, you need to deduct PF as per the law.

PF Withdrawal and Transfer

You do not have the option of deciding whether or not you will withdraw your PF. You are required by law to transfer it to your new company unless the new company is not covered under PF.