Confused About PF Deductions on Salary and Arrears? Let's Figure It Out Together

Dear Sir,

Suppose an employee's basic salary for April is Rs. 15,364, on which Rs. 1800 PF is paid. Now, due to an increment, we are paying a salary of Rs. 12,350 for May basic (there is leave, so the salary is less) plus arrears of Rs. 4000 for April, paying with May salary. What will be the PF deduction in May? Note: Assuming the employee will continue with PF even after the increase, subject to the maximum statutory limit.

Three Methods:

1) Here we are going by the logic that PF will be recalculated for April, and the difference amount will be paid in May. Hence, the calculation will be PF on May salary of Rs. 12,350 = Rs. 1482 + PF on arrears = 0 = Total Rs. 1482

- No PF on arrears calculation = (15,364 + 4000 = 19,364, on which max PF of Rs. 1800 is already paid)

2) 2nd Method: PF of May salary = 1482 + PF on arrears (straight calculation) 4000 * 12% = 480 = Total PF deduction 1962

3) 3rd Method: PF for the month of May = (12,350 + 4000 (arrears)) = 16,350 PF = 12% on 15,000 (max) = 1800

Now, please suggest which is correct and what will be the adjustment in EPS.

Regards

Hi Mr. Ali,

For the month of April, you paid PF contributions for Rs 15,000 (Basic + DA), which is the maximum ceiling according to the legislation. Hence, for the month of May, you have to consider the employee Basic + DA alone. According to you, it is Rs 12,350, so the PF contribution is Rs 1,482. Furthermore, do not add the arrears amount of April in May because in April, you already paid the maximum contribution of Rs 1,800. For May, arrears won't be a part of Basic for the month.

With Regards,

Mr. Thumbs Up

Clarification on PF Continuation and Arrears

First, let's clarify one point: there is no question about whether the employee will continue to stay in PF after his salary increases. If a person is in PF, he continues to stay in PF.

Secondly, regarding the arrears: are they accounted for in April and shown in the payroll? You couldn't have done so because you didn't know at that time what the increased salary would be. Therefore, you did not pay PF on it at that time.

Therefore, currently, your salary payment is 12,350 + 4,000. You will need to pay PF on arrears and salary up to the maximum limit - 15,000.

Since there is a contradictory reply, I request any reference from an Act or Case law supporting it to solve the problem. I also request others to contribute.