Understanding EPF Contributions: How Should Basic + DA Be Calculated for Salaries Over 15k?

Please let me know if there have been any amendments so that the Basic + DA should constitute at least 60% of the gross salary. Additionally, for those individuals whose Basic + DA exceeds 15k, their entire contribution should be directed towards EPF and not EPS.

Please focus on the points mentioned above.

Thanks and regards,
Rajeev Dixit

Please find the answer to your first query as follows: There is no standard rule or amendment available in the labor law legislations. Each company has its own standard salary structure, which they use to manage their internal employee bands.

Regarding the PF Act

The EPS is always calculated based on the ceiling of 6500 on the employee's basic salary, even if the employee earns more than 6500.

For example, if an employee's Basic+DA is 12000/-, in such a scenario, their EPS would be calculated as (6500*8.33%) = 541/-. The EPF would be calculated either on the actual basic (12000*12%) = 1440-541 = 899/- or on the ceiling of Rs. 6500, i.e., EPF = (6500*12%) = 780-541 = 239/-.

In the above example, the calculation of EPS remains the same and is restricted to or below 541/-. However, for EPF, it is calculated after the EPS calculation.

Regards,
Janardan

The EPS limit is now increased on wages up to Rs. 15,000. 8.33% of the employer's contribution of this limit shall go towards EPS. Any additional contribution amount will go towards EPF only.

Regarding Mr. Rajeev's Query

There is no standard rule that Basic + DA should not be less than 60% of the total salary. However, due to the wage ceiling enhancement in the PF Act, the PF department is conducting inquiries to collect information about employers who structure salaries in a way that reduces their PF costs. This is achieved by adding unnecessary allowances to the salary and keeping the BASIC + DA much lower.

For example, if the gross salary provided to an employee is Rs. 20,000 per month, employers may structure it as Rs. 6,000 or Rs. 7,000 basic + 50% DA, i.e., Rs. 3,000 or Rs. 3,500, and other allowances at Rs. 11,000 or Rs. 9,500. This practice is not recommended as it reduces the PF contribution even though the employee receives a higher amount as salary.

Therefore, the Basic + DA, along with other allowances, should be reasonable and not appear inflated.

Thank you.

Your opinion is correct, but you are well aware that the wage ceiling was increased from Rs. 6,500 to Rs. 15,000 effective from 1st September 2014 by the EPFO. As far as calculations are concerned, your explanation is correct. The limit is up to Rs. 15,000. Employees drawing a salary of basic and DA less than Rs. 15,000 will have employers' contributions towards EPS at 8.33%, and the remaining will go to EPF. For employees earning more than Rs. 15,000, the limit is applicable.

Amendment Awareness

In this regard, since the amendment of the scheme, the same questions have been raised daily by readers in various ways. The answer remains the same for all queries. People must familiarize themselves with the amendments before raising queries or seeking opinions.

Regards,
Adoni Suguresh
Sr. Executive (Pers, Admin & Ind. Rels) Rtd
Labour Laws Consultant