Navigating PF Changes: How Do Recent Amendments Affect Your Salary Components?

Clarification on PF Changes

Current Scenario:

Currently, all employees are covered under PF up to a Basic of Rs 6500 per month. There are a few employees who have opted for PF on the full actual Basic (i.e., more than Rs 6500 per month) within the existing CTC. Hence, the employee as well as the employer contributes 12% on the full actual Basic. Our salary components include:

- Basic: Paid Monthly on Payslip
- DA: Paid Monthly on Payslip
- HRA: Paid Monthly on Payslip
- Conveyance: Paid Monthly on Payslip
- Medical Allowance: Paid Monthly on Payslip, but bills are collected annually for IT exemption
- Personal Pay: Paid Monthly on Payslip
- Special Allowance: Paid Monthly on Payslip
- Attendance Bonus: Paid Monthly on Payslip subject to terms of settlement
- Shift Allowance: Paid Monthly on Payslip subject to terms of settlement
- Overtime: Paid Monthly on Payslip
- LTA: Paid Annually
- Bonus: Paid Annually

With the recent amendments in the PF Act, we would like to clarify the following:

1. What components attract PF?
2. If an employee and employer are already contributing on full Basic (more than Rs 6500), do they need to give any declaration with respect to the new changes?
3. If an employer is currently contributing PF on full Basic, for example, a Basic salary of Rs 1,00,000 per month, how would the deductions be treated? (Pension Contribution, PF admin charges, EDLI, EDLI admin charges)
4. Can an employee and employer whose Basic salary is more than Rs 15,000 opt for PF coverage on Full Basic?
a. Existing employee who is covered up to Rs 6500 but Basic is more than Rs 15,000
b. First-time working and joining at a Basic of more than Rs 15,000
5. Your circular says paragraph 26A of the EPF scheme restricts employer contribution to 12% of Rs 15,000 only, even if the employee is voluntarily contributing on full Basic. Please elaborate. Also, what happens to already covered employees with full Basic where the employer is also contributing 12% on full Basic?
6. Earlier, we could contribute to the pension fund at 8.33% on full Basic. What happens to them now?
7. What happens to international employees, i.e., expats working in India?

Clarification on PF Components and Contributions

1. As of now, only the Basic salary and Dearness Allowance (DA) will attract Provident Fund (PF) contributions. However, since this is a social security legislation and the contributions are meant for the welfare of workers upon retirement, a broader definition can be expected. If so, all allowances that form part of the agreement with the employee will be considered as salary for PF contribution purposes. This is because, during negotiations (yes, bargaining between the employer and employee at the time of the interview), the employee will settle for an amount they expect to receive monthly, which is their salary. To avoid statutory contributions like PF, Bonus, etc., and to reduce the employee's tax burden, the salary is often split into parts like Basic, DA, HRA, Medical, etc. As far as the employee is concerned, they receive what they expect, and that is their salary. Additionally, any amount not fixed or quantified, like a bonus dependent on the profitability of the organization or incentives based on performance, is outside the scope of salary. Similarly, components such as medical reimbursement or telephone reimbursement are also outside the salary because the amount is not certain and varies according to the situation.

2. If both the employee and employer have been contributing on a salary above Rs 6,500, they can continue this process. However, if they want their Pension Fund contribution on a salary above Rs 15,000 (i.e., without restricting the Pension Fund contribution to 8.33% of Rs 15,000), they must declare their choice for a higher contribution towards the pension fund. This option should be filed within six months; otherwise, it will be assumed that their pension fund contribution will be at the rate of 8.33% of Rs 15,000. If they opt for a pension contribution on a salary above Rs 15,000, the employee should contribute an additional 1.16% to the fund.

3. If the PF qualifying salary is Rs 100,000, the contribution will be Rs 12,000 by the employee and Rs 10,750 by the employer towards the Provident Fund, Rs 1,250 by the employer towards the Pension Fund (if there is no option for pension fund contribution on a salary above Rs 15,000), Admin charges by the employer at the same rate (1.1%) of PF qualifying salary, i.e., Rs 100,000, Rs 1,100, EDLI at the rate of 0.5% on Rs 15,000, and the admin charges of EDLI at the rate of 0.01% on Rs 15,000.

4. Certainly, yes. An employee whose salary exceeds Rs 15,000 can become a member of PF. When a new employee joins with a salary above Rs 15,000, they can be excluded as per the existing principle after obtaining a declaration in form 11 that they have not been employed earlier with PF. However, as per the earlier announcement, there was a direction that when a new employee joins with a salary of more than Rs 15,000, they can be covered by PF but should not be covered by the Pension Fund. This means the entire employer's contribution for such an employee should be paid to their provident fund without dividing it as 8.33% to the Pension Fund and the remaining to the provident fund, similar to what we do for employees aged 58 and above.

5. Voluntary contribution has nothing to do with this amount. It is a higher percentage as it is. You can continue contributing at a higher percentage, say, 15%/30%/100% of Rs 15,000 or 15%/30%/100% of Rs 100,000, as the case may be. If the employer has also been contributing at a higher salary (i.e., above Rs 6,500 or Rs 15,000), they can either stop it and start contributing only at 12% on Rs 15,000 or continue contributing on the higher salary. It depends on how the employer welcomes it. In the case of employees whose PF qualifying salary is already above Rs 15,000, say Rs 25,000, there will not be any problem since the CTC will include the employer's share of 12% on Rs 25,000. The employer can restrict their contribution to Rs 1,800 (12% on Rs 15,000) because the employer's liability towards PF is limited to that.

6. You can continue to contribute to the pension fund at 8.33% on a maximum salary of Rs 15,000. If you think that your pension contribution should be based on your actual PF qualifying salary, say Rs 25,000, then you will have to opt for that by giving a declaration within six months. Also, you should pay an additional 1.16% contribution.

7. For international workers, there was no salary ceiling. Their total Basic + DA was subjected to PF deduction, and that will continue.

Also, go through my apprehensions about the new PF scheme posted a few weeks back in the following link:

https://www.citehr.com/501275-new-pf...ehensions.html

Regards,
Madhu.T.K