Provident Fund Deductions: How to Handle Basic Salary Below Minimum Wage?

Provident Fund Deduction Query

My query is, shall we deduct PF on basic only if the basic salary is higher than the minimum wages declared by the authority? If yes, then what happens if the basic salary is less than the minimum wages declared by the authority? Please guide me on this matter.

Thank you.

Regards

It's an illegal matter if your employees are subjected to PF deductions based on wages below the minimum threshold. The company will be held responsible for bearing all penalties related to minimum wages and EPF.

Thank you, sir, for your prompt reply. If a company is offering a salary higher than the minimum wage but is showing a very low Basic, say only ₹4000/-, for the purpose of saving the employer's PF contribution, with no DA, but all other emoluments such as HRA, CCA, Washing allowance, etc., being paid at a much higher rate to meet the requirements of the Minimum Wages, then is it lawful to deduct PF contribution on ₹4000/- as has happened in this case?

No, not at all. A basic salary of 4000 should come under the minimum wages category. Other deductions do not apply to EPF.

I disagree with you. Please don't interlink the minimum wage rate and PF wage (basic + DA). Splitting the minimum wage for PF contribution is legally permitted. Some court cases are also available on the same.

Regards.

If anyone, please provide PF ruling on the same.

PF Contribution on Basic and DA

What happens if Basic and DA are not more than ₹4,000/- and other emoluments are very high, which do not attract PF contribution? In this case, ₹480/- on the above-mentioned amount is acceptable by the PF Department. All rules and sections regarding PF are silent on that...

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Deciding on the Basics

How can we decide on the basics? How can we set the structure of the salary in which PF deduction will be minimum and all criteria legally fulfilled?"

As per the discussions with some seniors, I came to know that there is no specific rule or circular regarding how much the minimum basic should be for PF calculation. Normally, PF authorities insist that the basic should not be less than 50% of the Gross Salary. However, there is no specific order to support that.

Currently, there is a proposal to increase the PF liability to 50% of the gross salary or Rs. 15,000/-, whichever is lower. A circular regarding this will be published very soon.

Regards.

Latest Government of India Update on Provident Fund

The latest information from the Government of India aims to provide clarity and avoid confusion among young HR executives in India. The Government of India (GOI) will now include, for the purpose of Provident Fund (PF), even those organizations where the number of employees is less than 20. Additionally, PF will be calculated on the entire salary, i.e., basic plus all allowances! Your comfortable days are not far away; however, your take-home salary will come down drastically! Be prepared!

You have not indicated the breakdown of your total emoluments or your salary structure. Is it a consolidated gross salary or split into basic, DA, HRA, CCA, medical allowance, conveyance, etc.? Presuming that you have a consolidated total salary, you should have a notional split-up like Basic, DA, which should not be adjusted. It's illegal to reduce your basic + DA to lower PF contributions. In the future, you could determine your basic + DA appropriately. For now, as a rule of thumb, you can consider 50% of your gross salary as basic, plus another 25% as DA, and calculate PF to avoid complications.

Best regards,