Can Our Company Switch PF Contributions to Rs. 780 Midway? Seeking Guidance on Rules and Procedures

Dear Experts,

I recently joined a private limited company as an HR Executive. This company is paying 12% of the basic towards PF contribution. I told the management that the company can restrict the PF contribution to Rs. 780 per month, which will save money for the company. The management has asked me to start the procedures.

My Doubts Are:

1. Can a company stop the 12% contribution and start contributing Rs. 780 in the middle of the operations?
2. If yes, can this change be applied to all employees or only to newly joining employees?
3. What is the procedure to do this?

Note: The company's current strength is 90+. It was established in 2010.

As per the latest amendment, an employer cannot reduce wages according to the Provident Fund Act. No employer, in relation to an establishment to which any Scheme or Insurance Scheme applies, shall, solely due to their liability for the payment of any contribution to the Fund or the Insurance Fund or any charges under this Act, Scheme, or Insurance Scheme, reduce, whether directly or indirectly, the wages of any employee to whom the Scheme or Insurance Scheme applies or the total quantum of benefits in the nature of old age pension, gratuity, provident fund, or life insurance to which the employee is entitled under the terms of their employment, express or implied.

Yes, you can do this now for all employees. We have attached the relevant circular for your immediate reference. In case you are looking for any professional support, please write to us.

Regards

Please read the notification. It states that no one should force the employer to contribute beyond the ceiling limit. The question is, can we stop contributing over the ceiling during the operation? For this, you need to read the new amendments in EPF, so please read my post clearly.

Refer to PF Section 12

In case the employer is currently deducting PF higher than the prescribed limit of Rs 6500 and depositing the same to RPFC, the employer can reduce and limit it to Rs 6500.

Please note that the question was not about stopping all contributions; rather, they wanted to reduce the contribution above the ceiling (Rs. 6500/-). Therefore, we suggested some possibilities. I hope it is clear now.

If the employer is currently deducting PF on an amount higher than the prescribed limit of Rs 6500 and depositing the excess to RPFC, the employer can adjust and limit it to Rs 6500. The employer can restrict their contribution up to the ceiling of Rs 6500. However, if the employee's contribution exceeds this limit, the employer cannot reduce the limit.

Hope this clarifies things.

Regards,

Supreme Court Judgment Reference

It can be done; there is a Supreme Court judgment in the Marathwada Gramin Bank case. Please refer to the attached judgment. The aforementioned circular was issued based on this case only.

Regards

Yes, you are right. When an employee is entitled under the terms of their employment, whether express or implied, that cannot be reduced.

I need the EPF Act clause and section that states that an employer can reduce the employee contribution at any time. I have seen your notification, but I want to know under which section it specifies that the employer can reduce the employee contribution at any time.

EPFO Circular and Employer Contribution

1. It is clearly mentioned in the circular of EPFO dated 27/05/2014, not to force the employers to contribute over and above the statutory wage ceiling in respect of their employees. Therefore, in my opinion, the employers who are contributing over and above the wage ceiling can reduce their part of the contribution as per the above circular of EPFO.

2. However, I will suggest to the person who initiated this thread to please seek prior approval from the authorized officer of their appropriate EPFO office, indicating therein the circular of EPFO Headquarters as mentioned above. The prior approval will definitely avoid any risk of levy of interest and damages in case of any other opinion of the officer concerned.

I agree with Harsha's comment. What the Act says is that the employer's share is a maximum amount of Rs. 780 (6500 x 12%). The issue raised for seeking an opinion is whether the employer can reduce the amount and pay Rs. 780 as the employer's share.

Here, the EPFO bifurcates the contribution of the employer and the employee. If the employer pays more than Rs. 780, the excess amount will be deposited into the employee's share.

Hence, in this particular case, the person who raised this issue has to confirm how the EPFO authorities bifurcated the amount paid by his management.

It is correctly said that EPFO, dated 27/05/2014, does not force employers to contribute over and above the statutory wage ceiling in respect of their employees.

Yes, it is not reducing the benefit; it is following the PF rules. This can be done by providing prior intimation to the employees. There is nothing wrong.

Regarding PF/EPS Contribution of the Employer

When an employee is contributing, let's say, 12% of his basic salary, which is 50,000, the amount of 6,000 (50,000 x 12%) is credited to his PF account correctly. As per the Act, the employer needs to contribute an equal amount, right? In that case, the employer has to contribute Rs. 6,000. Out of this, Rs. 1,250 (15,000 maximum amount eligible for EPS calculation x 8.33%) will be marked for EPS, and the balance Rs. 4,750 (6,000 - 1,250). Please confirm whether this is correct or not?

Point No. 2: Employer Contribution Possibility

Is it possible for the employer to contribute in the above case only Rs. 1,800 (15,000 x 12% - 1,250 for EPS and 550 for PF of the employer's share) and not Rs. 6,000 even though the employee is contributing 6,000? Please confirm what the specific rule is under which there is any provision (please attach a copy of the same). Thanks

Referring to the circular shared by Pragnaa HR above, the maximum statutory salary limit on which contribution has to be made is Rs. 15,000 (or actual drawn salary, whichever is lower). I would suggest the following things to avoid any administrative hassle on a monthly basis and to ensure compliance during inspections.

I do not agree with making an employee contribution on an amount of Rs. 20,000 and an employer contribution on an amount of Rs. 15,000. The employer has to make an equivalent contribution, even if it is legally allowed. Instead, limit both the employer's and employee's contributions to Rs. 15,000 (i.e., Rs. 1,800 + Rs. 1,800).

If an employee wishes to make additional contributions, let them do so through voluntary contributions, which can be up to 88% of the basic pay. You should maintain a document (a request letter) from the employee stating the rate of voluntary contribution. However, ensure that this voluntary contribution, although voluntary in nature, can only be changed (increased/decreased) in the month of March (the first month of the year for PF purposes), and it can be started at any time during the year.

I agree with Mr. Harsh Kumar's point mentioned above; kindly inform the respective RPFC about your decision or discuss it with them for their input before taking any action, especially if you plan to implement changes now after having made contributions on salaries above the statutory limit in the past.

Please share if any of you have made a decision and if it has been approved by the PF authority by now.

Regards,
Puran