Is It Legal for My Company to Deduct the Full 24% PF from My Salary? Seeking Advice

Dear Sir/Madam, I have recently joined a company and am in the training period, which is about to end. While joining, PF deduction was not there, but now they have introduced PF, and that too the ENTIRE 24% (employer + employee contribution) deduction from the employee's salary. Could you please advise me if this is legal? If not, what actions can be taken? I would appreciate a prompt response.

Thank you.

Have you received any appointment order? Kindly verify that. According to the Act, it is not legal. The rule states that only 12% will be deducted from the employee's salary. You can visit your PF office and contact an Enforcement Officer to resolve this issue.

Dear seniors, please correct me if I am wrong.

Regards,
M. Dinesh Kumar.

If they have introduced CTC, then both contributions can be applicable. If they are deducting both contributions from your gross, then it's illegal. Kindly make sure about CTC and Gross.

Thank you.

Understanding Gross Salary and CTC

When you join any company, it is advisable to clearly ask them about your gross salary and CTC. For a general view, gross salary and CTC can be defined as follows:

Gross Salary
It includes in-hand salary plus statutory deductions (TDS, ESIC, PF, LWF, etc., only the employee's share).

CTC (Cost to Company)
It includes gross salary plus statutory benefits (ESIC, PF, LWF, bonus, gratuity, etc., only the employer's share) and other benefits (transportation, food, etc.).

So, kindly check your appointment letter. If the company is deducting the PF employer's share from your gross salary (as per the appointment letter), go to HR and ask for clarification in writing.

EPF Act 1952 Section 12: Employer Not to Reduce Wages

“No employer in relation to an establishment to which any Scheme or the Insurance Scheme applies shall, by reason only of his liability for the payment of any contribution to the Fund or the Insurance Fund or any charges under this Act or the Scheme or the Insurance Scheme, reduce whether directly or indirectly, the wages of any employee 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.”

Regards,
Anurag

Understanding CTC and PF Deductions

This is a common mistake that many so-called HR professionals make. In their eagerness to show savings to their boss, they try saving a few hundred rupees and expose the company to penalties. The concept of CTC is that all costs will be on the company's account.

So under that concept, the entire PF is deducted from the CTC of the employee. However, Indian labor laws do not recognize CTC. Instead, the concept of gross wages is followed. Once the gross wages are fixed, they remain at that level. So now that the PF has been introduced, the gross wages cannot be lowered to pay the employer's part of PF (sec 12). Only the deduction of the employee's share will increase.

The company can adjust it in CTC when appraisals take place. Meaning that you will get a lesser hike then, but they cannot lower your gross wages for this purpose.

Para 31 of the EPF Scheme 1952 envisages that the employer’s share should not be deducted from the members. Notwithstanding any contract to the contrary, the employer shall not be entitled to deduct the employer’s contribution from the wage of a member or otherwise recover it from them.

As per the above ruling, the employer cannot recover the employer's share of P.F. contributions and also the administrative charges, which work out to 13.61%, from the salaries of employees. This practice is going on unchecked with wrong interpretation under the pretext of CTC, and this practice is nothing but hoodwinking the employees by showing exaggerated salaries in their CTC while appointing their workforce. Employees should know this ruling and should invariably resist the deduction of the employer's share of contributions and also the administrative charges.

I do not have much experience with EPF as the employee strength in my company has not reached 20 so far. I feel that the views of Mr. Srinivas Venkat appear to be in order. CTC fixing does not solve the problem. As is clear from its name, it is an employer contribution, and hence it has to come from the employer's kitty and not from the employee's kitty. However, it can be considered by the employer while considering the annual increment grant time after evaluating the employee's performance to accommodate this amount of EPF part in his annual increment as there are no binding guidelines for this component. You may grant the increment as zero or even a 50% raise. It is up to the company and its resources.

The query has been correctly addressed by two knowledgeable members who referenced Section 12 and Paragraph 31. It is illegal to deduct the employer's share from the employee's salary. The individual asking the question used the term "salary" instead of "CTC."

Employer PF contribution is part of CTC and it is never deducted from Gross Salary. Only employee contribution is deducted from Gross Salary. Employee and Employer PF contribution is credited to Employee PF Account.

Thank you.