How Should Employers Handle the New PF Wage Ceiling Limit for Salaries Under 15,000?

Increase in PF Wage Ceiling Limit

With reference to the increase in the PF wage ceiling limit, if an employee's basic salary is less than 15,000, should the employer increase the salary of the employee to 15,000 (resulting in increased cash outflow for the employer), or should all the other allowances/reimbursements of the employee be added to the basic to equal 15,000 (leading to a reduction in the take-home pay of the employee due to the increased contribution to PF on the revised basic)?

What approach do various organizations take in this situation? Please provide your valuable inputs.

Regards,
Veena

Attribution: http://citehr.com#ixzz3CnezbY1w

The PF department has only increased the ceiling limit for PF contribution from ₹6500 to ₹15000. This means that whatever the current basic or gross salary is, it shall remain the same. However, instead of restricting the contribution to ₹6500, you may have to contribute to the PF up to ₹15000. In this case, there will be more employees covered under EPF, and there will be more savings for the employees.

I don't think any company will change the existing structure.

Earlier, the ceiling was Rs. 6500/-. Now, the ceiling has been enhanced to Rs. 15000/-.

Options for Employees Regarding Wage Ceiling

There are two options for the employees of the organization. At the commencement of the organization, the employer decides whether to go with wage ceiling restrictions or without restrictions. That is, if your basic is more than Rs. 15000/-, you will be restricted to Rs. 15000/- only; if it is less, then there is no need to enhance. For example, if your basic is Rs. 14000/-, then all deductions will be calculated on Rs. 14000/- only.

Accounts for PF Subscriptions

There are 5 accounts where PF subscriptions get deposited:

- **A/C No. 1:** Employee contribution 12% of Basic + DA + Retention allowances if any (Irrespective of your Basic, either 12% will be deducted or it will be restricted to Rs. 15000/- only).

- **A/C No. 10:** Employee Pension Scheme: 8.33% of Rs. 15000/-, that is Rs. 1250/-, will be deposited; the remaining amount will be deposited in A/C No. 1.

Example Calculations

For my basic pay of Rs. 20000/- with no DA and Retention allowances:
- A/C No. 1: Rs. 2400/- will be deposited
- A/C No. 10: Rs. 1250/-
- Remaining Rs. 1150/- will also be deposited in A/C No. 1.

For my basic pay of Rs. 14000/-:
- A/C No. 1: Rs. 1680/-
- A/C No. 10: 8.33% of Rs. 14000/-, 3.67% of Rs. 14000/- will be deposited in A/C No. 1.

Additional Accounts

For A/C 2, A/C No. 21, and A/C No. 22 (1.10%, 0.5%, and 0.01% of Rs. 15000/- to be deducted and deposited).

If your basic is more than this, it will be restricted to Rs. 15000/- only; if it is less, there will be no change.

Please let me know if you need any further information in this regard.

Warm regards,

Pranab Chakraborty

[Phone Number Removed For Privacy Reasons]

Wage Ceiling for PF Contribution

The wage ceiling for PF contribution is now set at INR 15,000. Wages earned below INR 15,000, including INR 15,000, will come under the purview of PF contribution. This means more employees will now have to be registered under PF and will receive the benefits of PF.

I hope that the process of retrieving benefits from the PF, such as loans, becomes easier and more simplified for the employees. This can encourage employees to contribute more and save more for the future. A simplified process to avail privileges and benefits will contribute towards greater awareness about PF and its functioning.

Query on Adjusting Basic Salary Due to PF Ceiling Increase

I have a query. We have employees who are excluded as their basic salary is Rs. 12,000. Now, as the PF ceiling has been increased, can we reduce the basic salary of the employee so that the employer can avoid extra burden due to a higher basic salary? Will it be objectionable for EPFO to reduce the basic for lesser contribution? Please suggest.

Regards,
Dinesh Kumar

Dear Dinesh,

Your thinking is inviting trouble. Any attempt to revise the basic salary (i.e., Basic pay + DA + value of food concession as per the EPF Act) downward with a view to lower the Employers' contribution to the EPF accounts is not only objectionable but also illegal, thus inviting trouble. So, it is better to comply with the amended law without altering anything which may be construed as unfair labor practices and punishable. After all, considering the marginal increase from Rs. 780 to 1800 per head, per month plus the burden on account of employees added (who were drawing more than 6500 and were not members then) now is not going to adversely affect the bottom line of your company to a greater extent. Instead, try to examine other ways and means where wasteful expenditure could be trimmed to offset the additional expenditure to a major extent or boost up your revenue to cover the additional CTC.

Regards,
Dinesh Kumar

Guidance on PF Limit and Salary Structure

I require guidance on the following:

• Some facility management companies (contractors) are simply adhering to the ₹6,500/- PF limit, with the remaining amount of salary being distributed among other components such as Education Allowance, Other Allowance, HRA, Personal Pay, etc. The gross salary is ₹9,700/-. Now, due to the raise in the PF salary limit, should we merge all the above allowances into the basic salary up to ₹15,000/-?

• Experts are requested to provide their opinions on whether the amendment is only related to Family Pension or if it also affects Provident Fund contributions. Currently, compliance is based on ₹6,500/- as the basic salary. We may need to increase deductions for both employees and employers by restructuring the salary slab.

Regards,
Shirish Kulkarni

Practical Queries for HR Executives in Small to Medium-Sized Organizations

I have two queries which are very practical for HR executives, senior managers, and executives working in small to medium-sized organizations.

1. If an employee is not willing to deduct his EPF because his take-home pay will be reduced, even after several discussions, and he remains unwilling to deduct his EPF, what should a human resources person do? How should one initiate action in a situation where there are 25 or more such employees in an organization with a total workforce of 80?

2. Is there any legal restriction from EPFO when organizations are deducting 25.61% from the basic salary of employees hired on a CTC basis? Are there any guidelines from EPFO regarding this practice?

You may understand that the above-mentioned queries are very practical. I kindly request all members and seniors to share your valuable information, suggestions, and advice on the matter.

With Regards,
Dillip