Can Our Company Switch to Paying PF Only on the Rs.15,000 Ceiling Instead of Full Basic Salary?

Our company has been paying PF on the full basic salary (without any ceiling of Rs.6,500/Rs.15,000); this means that if the basic salary is Rs.25,000, PF is paid on this amount.

Opting for PF Ceiling

Is it possible for the company now to opt for the "ceiling" and pay PF only on the ceiling amount of Rs.15,000 instead of the full basic salary?

You are at liberty to make PF contributions as per the ceiling, but it is a curtailment of benefits extended to the employees thus far. This may lead to resentment among employees.

Pon

With reference to your thread, refer to the attached Curious Case of Marathwada Gramin Bank Employees’ Union.

Conclusion of the Case

Employers always had the right to limit their provident fund contributions to the limits laid down under the EPF Act. Subject to anything to the contrary in the terms of employment, if the employers are making provident fund contributions above the statutory limits, there is no bar on them from reducing the same to the limits under the EPF Scheme. The EPFO now appears to be in agreement with this position.

On a different note, the above discussion would not be relevant in the case of PF contributions of international workers. So far as international workers are concerned, their provident fund contributions are calculated on their total monthly pay. In other words, the contribution of the employer is not limited to the amounts payable on a monthly pay of Rs. 6,500/-.

Regards

Whatever you said is correct, the employers are prohibited from reducing the amount of PF contribution under Section 12 of the EPF Act.

Section 12 of the EPF Act

Section 12 of the EPF Act provides as follows:

“No employer ... shall, by reason only of his liability for the payment of any contribution to the Fund ... reduce, whether directly or indirectly, the wages of any employees to whom the Scheme or the 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 his employment, express or implied.”

Court Considerations

But if you go through the court considerations mentioned in the attachment of my previous reply:

Courts Rule in Favour of the Employer

On examination of Section 12, the Bombay High Court observed that the employer would be barred from reducing its PF contribution only if the same were contrary to the terms of employment of the employees. In the present case, the terms of employment of the bank’s employees expressly provided that the provident fund contributions would be in accordance with the EPF Act. In other words, there was no provision in the terms of employment which required the employer to make PF contributions beyond its statutory obligations.

The Supreme Court, on appeal, concurred with the judgment of the Bombay High Court and observed that the employer cannot be compelled to pay PF contributions in excess of its statutory liability just because it started making PF contributions in excess of its statutory liability for some time.

Thanks & Regards,

Pavankumar P

I have one doubt regarding PF in a private limited company. How many employers are needed for PF contributions?