How Should Companies Handle the PF Ceiling Increase in Employee CTC?

Labour Minister Assures Increase in Ceiling Limit

The Labour Minister has assured an increase in the ceiling limit from ₹6,500 to ₹15,000.

Here begins the dilemma for employers and employees in organizations where PF is deposited on ₹6,500, and now it will be deposited on ₹15,000. The issue arises because the employer contribution increases from ₹780 (₹6,500 * 12%) to ₹1,800 (₹15,000 * 12%), but the company has already shown ₹780 in the CTC. So, in this case, which option should the company adopt?

Option 1: Revise Salary Letter

Should they revise the salary letter and show the PF contribution (Employer) as ₹1,800 in the CTC (because this is an extra burden on the company)?

Option 2: Revise on Next Appraisal

Should they revise the letter during the next appraisal or increment letter?

Option 3: Exclude Extra Amount in CTC

Should the company not include the extra amount (₹1,800 - ₹780 = ₹1,020) in the CTC (because the in-hand salary of the employee will be lesser now after including both the employee and employer parts)?

Please suggest...

Impact of Government Policy Changes on Employee Salary

It is very simple: if the government raises the IT slab, then ultimately it is going to be deducted from the employee's salary. When a company is following a CTC model, ultimately it is to be credited to the employee's account.

On the other side of the coin, if the government reduces the PF ceiling to Rs. 5000/-, then ultimately the contribution is going to be reduced to Rs. 600/- against Rs. 780/-. No employee would accept such a reduction in salary to that extent; hence, it is to be credited to the employee's account only.

Regards,
Kamesh

I agree with Mr. Kamesh's comments. Generally, any change in statutory deductions means both the employee and employer will share the burden. In this case, due to the higher PF contribution, the employees' take-home salary will be less. However, at the same time, due to the higher employer contribution, PF savings also increase. In any case, the employee will be at a loss as most companies do not follow the CTC concept, where the employer PF contribution is included and deducted from the employee's salary. The financial impact on the employer will be minimal. It depends on the concerned management's decision to revise the employee's CTC mid-term or during the next pay revision.

Regards,
Selvaraj Ponnuswamy

Sorry! My previous statement should be read as, "In any way, the employee will be at a loss as most companies are following the CTC concept, wherein the employer's PF contribution is included and deducted from the employee's salary." Regret the inconvenience for the typographical error.

Regards,
Selvaraj Ponnuswamy.

Impact on Employees with Salaries Below 15,000

What happens to the employees whose salary is less than 15,000/- per month?

Regards,
Sangeeta

If the number of employees is less than ₹15,000/-, then PF shall be contributed based on actual wages only.

CTC Flexibility and Gross Salary

The CTC term is flexible. The gross salary shall not change. You can reduce the additional burden in some other allowances. In effect, the final tally of CTC remains the same.

Regards,
Pon