Understanding PF Deductions: When Should a Small IT Company Start?

Hi,

We are an IT company with an employee strength of 10 currently. I wanted to know when we are eligible for deducting PF from employees.

You are required to register and get coverage for PF when you have more than 19 employees. However, you are eligible to register voluntarily before that also. The compliance is complex and cannot be discontinued. Furthermore, most employees do not want it. So I would suggest you don't be in a hurry to start it.

Anyone who wants can always open a PPF account with a nationalized bank and opt for that in the absence of EPF from the company.

Dear friends,

In EPF, the employer has to contribute at par with the employees' contribution. This means the employee's contribution will get doubled in the same month. When interest is added, it will further increase. Where will we find such earning? Additionally, the deposit is secured and exempted from income tax.

In this context, if employees are not interested in registering with PF, it may be due to a lack of awareness.

Abbas.P.S

Applicability of Employees Provident Funds and Miscellaneous Provisions Act

The Employees Provident Funds and Miscellaneous Provisions Act will not apply to your organization if it has fewer than 20 employees across India, including all its branch offices. Considering that your company presently employs only 10 employees, it is not required under the law to contribute towards the provident funds or make any deductions towards the PF from its employees' salaries.

Having said that, your organization can voluntarily register itself under the Employees Provident Funds and Miscellaneous Provisions Act if it wants to do so. Your company can make the employer's contribution and also deduct employees' contributions from the salary only after obtaining registration under the Act. Please do not start deducting PF from the salary of employees without obtaining registration under the Act, as it is a serious violation.

Since you have only 10 employees, your establishment is not legally required to go for PF registration unless, of course, your establishment wishes to do so. But always remember that once you are registered, you would need to continue to pay the PF contributions even if your strength remains the same or falls below 10.

As rightly said by some of the members, your establishment would also need to pay an equal amount of the PF contribution every month (including admin charges along with contribution to EDLI) to the respective PF Office. Now, this would be an additional financial burden for your establishment unless you have considered that while calculating the CTC of each of the 10 employees. Moreover, your employees would now have a lesser take-home salary since a portion would now go towards the PF.

Check with the employees and your employer. If they both agree, you can go ahead and get the PF registration. Withdrawal from salary and remittance to the PF should be done only after you are allotted the PF code. Ideally, the PF scheme is actually beneficial to all employees and it provides financial help in the long run. Hence, it is advisable to go for it.

Regards,
A.B.

Deduction from salary becomes a kind of forced savings, which is necessary as not everyone may be expected to be meticulous about savings. The tendency to splurge exists among many, and the availability of extra cash makes one feel free.

EPF as a Saving Avenue

EPF is an excellent saving avenue and should be introduced if the employer is ready to do so. EPF is a good avenue for savings aimed to be a retirement corpus. Now that EPF is also slowly taking the gamble of investing in stocks, returns hopefully will go beyond 8.5% compound interest. The tax-saving aspect makes it the icing on the cake.

Think long term, consider all aspects, and go ahead with a pro-employee decision.

CTC is the cost to the company. Accordingly, both employee and employer contributions are included in CTC. Hence, the statement that "there is no doubling of the income" is wrong.

Abbas.P.S

If you are having a CTC of ₹1000, if you have PF, you get in hand ₹760 and ₹240 in PF. Or actually less as some of it goes to the pension fund. If you don't have PF, the entire money comes to you. So, where is the doubling?