Understanding PF Calculation: Why Basic + DA Might Not Be the Right Approach

Understanding PF Calculation: Basic + DA Misconception

There is a misconception that PF is calculated on Basic + DA.

Determining Basic + DA

But how is Basic + DA determined? The Labour department publishes Basic + DA, but it cannot be used for PF calculations. Companies generally set an amount as basic, which may be higher than the actual basic, and the same is the case with DA.

PF Wages Calculation

PF wages have to be 75% to 80% of the total salary or Rs 15,000 - whichever is lower.

For example:
- Basic: 11,000
- DA: 3,000
- SA: 7,000
- OA: 4,000
- Total: 25,000

In the above case, people often calculate the PF on basic + DA = 11,000 + 3,000 = 14,000. 12% = Rs 1,680, which is lower than the actual amount to be paid.

If the salary is 25,000, then 75% of it is 18,750, which is higher than 15,000. Since 15,000 is the lower figure, we need to calculate the PF on 15,000. 12% of 15,000 = Rs 1,800, which is to be deducted from the staff salary.

Employer's Contribution

The employer's contribution has to be 13.36% of the same amount on which the employee's 12% is calculated. Since it is 15,000 here, 13.36% = Rs 2,004.

You can get in touch for any further clarification.

Understanding PF Calculation: Basic + DA

There is a misconception that PF is calculated on Basic + DA. But how is Basic + DA determined? The Labor Department publishes Basic + DA, but it cannot be used for PF calculations. Companies generally set an amount as Basic, which may be higher than the actual Basic, and the same is the case with DA.

Determining PF Wages

PF wages have to be 75% to 80% of the total salary or Rs 15,000 - whichever is lower. For example, if:
- Basic is Rs 11,000
- DA is Rs 3,000
- Special Allowance (SA) is Rs 7,000
- Other Allowances (OA) is Rs 4,000
- Total is Rs 25,000

In the above case, people generally calculate the PF on Basic + DA = Rs 11,000 + Rs 3,000 = Rs 14,000. At 12%, this amounts to Rs 1,680, which is lower than the actual amount to be paid. If the salary is Rs 25,000, then 75% of it is Rs 18,750, which is higher than Rs 15,000. As Rs 15,000 is the lower figure, the PF needs to be calculated on Rs 15,000, resulting in 12% of Rs 15,000 = Rs 1,800 to be deducted from the staff's salary.

Employer's Contribution

The employer's contribution has to be 13.36% of the same amount on which the employee's 12% is calculated. In this case, with Rs 15,000, 13.36% amounts to Rs 2,004.

You can get in touch for any further clarification.