Navigating New PF Rules: How Can We Manage Costs Without Cutting Salaries?

Dear All,

As you all know, the PF limit has been increased to 15,000 basic. Now, all our employees fall within this limit, and according to government policy, we have to deduct their PF as per the rules. This results in our company incurring extra costs per employee. Our management is seeking a solution to avoid this additional expense as the company is currently unable to afford it, especially with sales figures declining by more than 50% over the last three months.

Proposal from Labor Law Advisor

Our labor law advisor suggests decreasing basic wages and increasing other perks for all employees so that the PF share will be reduced, with their consent given through a no objection letter.

Concerns and Ethical Considerations

From my perspective, this practice seems unfair and unethical. It would also be challenging to communicate to employees the decrease in their basic salary. According to the Factory Act rules, the basic salary should be 60% of the gross pay. Therefore, reducing salaries to less than 60% would be problematic.

Alternative Approach

I am considering providing new employees with a letter stating that the company will cover their PF contributions and that they will not receive any increments next year. I believe employees should agree to this arrangement. I intend to explain to them that the company's financial position is currently weak, making this extra cost unaffordable. The company provides the annual increment in the form of PF contributions six months in advance.

I welcome your valuable suggestions on this matter. If you find this approach acceptable and ethical, please provide a format for drafting the letters.

Looking forward to your prompt feedback.

Thanks & Regards,

Amit Kumar

I think an employer can keep a cap of Rs. 780 per month (based on a minimum Basic of Rs. 6500). This way, an employee would have to go with the employer's option of Rs. 780 per month. By doing this, you can reduce the cost to the company, which is not unethical. Additionally, the employee will take home more pay.

Please recheck.

Regards,
Amit

I appreciate your thought, but you cannot give a letter to employees regarding their increment as per the law. (I am planning to give all the new additional employees a letter that the company is providing them PF contribution and they will not get any increment in the next year. I think employees should agree on this point.) The employer has the authority to give an increment or not.

You can manipulate their basic, but their net take-home will not be affected. If your employees are crossing the 15,000 limit, then just fill form no. 11 and make them an excluded employee. One more notable point is that the ceiling limit of 15,000 has not been defined as to whether it should be calculated on Basic Salary or Gross Salary.

Regards,
Abhay