Understanding PF & ESI Deductions on Arrears: Can Anyone Clarify This Confusion?

Dear all,

Could anyone please clarify my doubt? Our company gave the increment to employees in April 2015, but the increment was actually given from June 2015 onwards. The arrears for the previous two months will be paid in June. Will the PF & ESI be deducted from the arrears as well, considering we have already paid the PF & ESI contributions for the previous months?

Please help me in this context.

With Regards,
Narasimha Rao .M.

Dear Mr. Narasimha Rao M.,

To EPF, contributions on arrears for the full period have to be remitted. Regarding ESI, I shall quote ESI Coimbatore as, "As and when any increase in the wages/remuneration is declared with retrospective effect, the liability towards payment of contribution accrues only in the month in which the decision is announced, and no contribution is payable on the arrears pertaining to the period prior to the month of declaration/announcement."

Abbas P.S.

Sir, if the company declared in April 2015 about awarding increments, then the contribution under the ESI Act, 1948 is payable on arrears of such increments for the months of April and May 2015.

Dear Mr. Narasimha Rao,

Please find attached a copy of the Circular from EPFO and an extract from the ESI employer's guide regarding contributions on arrears on PF and ESI.

Regards,

N. Nataraajhan
Sakthi Management Services
HP: +91 94835 17402
Email: natraj@sakthimanagement.com

For ESI, contribution on arrears need not be paid. But for EPF, contribution on arrears should be paid if the wages are below Rs 15,000 per month.

Even if the wages are above Rs. 15,000, it is mandatory to contribute for Rs. 15,000 for an existing member.

Abbas.P.S

Interest Accrual on PF Contributions

Please note that you'll begin to accrue interest on PF from the second month after remitting the dues into the PF account. When you pay arrears, there is an increase in Basic Salary as well. Consequently, the PF contribution also increases, leading to an increase in the dues going into accounts 1, 2, and 21. Therefore, the member's contribution does not suffer in this scenario. However, the issue lies in the interest paid out. All these members miss out on the interest for the months in which the increment payout is delayed.

Let me provide an example to clarify. Let's assume the regular increment is effective from 1st April '15, and the arrears are paid out from June '15 onwards (resulting in a two-month delay). Hence, the members will lose interest for two months, but only on the arrear amount (the differential amount being remitted into your PF account - Account 1).

Cheers,
A.B.

Dear Mr. Narasimha Rao -

Good afternoon,

Please note that the employer does not need to pay contributions for PF & ESI on arrears amounts that do not come under the category of wages as per the provisions of the PF & ESI Acts.

Thanks & regards,

V. R. Rao Pulipaka

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