Struggling with High PF Costs: Are There Any Exemptions for Small Companies?

Hi friends, nowadays, I am facing a problem related to PF contributions in my company. We are a small-scale company, and our salary structure is as follows:

- Basic = 60% of gross
- HRA = 40% of Basic
- PF = 12% of Basic

Due to this structure, we have to pay $1800 for PF for one employee - $1800 from the employee, $1800 from the employer, and an additional $4000 for administrative charges. With over 50 employees, it has become increasingly difficult for the company to manage such a large amount.

I am seeking suggestions for cost-cutting in PF contributions. Are there any rules related to PF that would exempt the company from contributing to PF?

Thank you.

Your company is already covered under the EPF Act. There is no question of cost-cutting by not remitting EPF contributions, which may land your employer in big trouble. Think twice before you make any decision. You cannot avoid or ignore statutory contributions like EPF.

Hi,

As per the EPF rules, the contribution can have an ascending trend; it cannot be decreased. Moreover, the penalty and damages of EPFO are at a higher rate. Therefore, timely remittance is the cost-effective method.

EPF Compliance and Cost-Cutting Strategies

The EPF compliance is not only a statutory benefit but part of a Social Security System as well. As stated by experienced members, there is no way to escape from the liability. On the contrary, if it is found you are doing something which is against the Act, that could attract damages and penalties.

However, as mentioned by you, in your company, more than 50 employees are working. You have considered Rs. 1800/- contribution for all. This means Rs. 15,000/- salary per head.

But there may be some employees whose salary structure may not be that high, so you can deduct EPF on a lower salary (Basic+DA). Please note, if you have already deducted and deposited PF at a higher rate, that can't be reduced. However, you can take care of this point for fresh appointments (new employees). Please make them aware at the time of enrollment.

Moreover, the EPF % for employer contribution is at 13.36%, so on a Rs. 15,000 salary, the employee and employer contribution will be Rs. 3,804/-.

If your company really wants some cost-cutting, I would suggest focusing on other overheads (Staff Welfare, Printing, Conveyance, Traveling, etc.).

Please don't try to manipulate the statutory benefits. These are related to people (like us), their livelihoods, savings, and future security.

Regards

Hi,

Once covered under PF, one should continue contribution until he/she retires or leaves the organization. Discontinuing contributions can lead your organization into significant trouble.

One option is to hire any new fresher candidate (from the most recent batch) or employee who has not made previous PF contributions. For them, fill out Form 11 and pay a basic salary of more than Rs. 15,000/- to exclude them from PF contributions.

Do you agree with me? Am I right or wrong? Kindly advise.

Thank you.

Dear Pritee, other members have given their valuable comments. Now let me suggest something different. You may perform the exercise in MS Excel. Find out the employer's contribution for PF if the basic pay is at 35%, 40%, 45%, 50%, 55%, and 60%. Discover if any pattern emerges.

Lastly, I echo the views of Mr. NK Sundaram. What you have calculated is only the visible "cost" (even if we consider PF as a "cost" as such). While running an organization, there are several invisible costs. What about curtailing those costs?

Thanks,

Dinesh Divekar

Thank you all for your valuable suggestions. I will try to implement such practices in my office. Working as an HR professional is really important to me as I need to take care of my employees and my company. I am a fresher in this field and do not have much experience in legal matters like PF and others. I will try to solve these issues. Thanks.

You can change the salary structure like a lot of companies follow:

1) Basic - 35% - 50% of Gross

2) HRA - 40% of Basic for Non-metro & 50% of Basic for Metro

3) Con - Max Rs. 800/ PM, which is a maximum of Rs. 9600 PA

4) Medical Reim - Max Rs. 1250 / PM, which can be a maximum of Rs. 15000 PA

5) Spl Allow - Balance of Gross will be provided as Special Allowance

This change will automatically reduce the employer's contribution.