How Do You Calculate Provident Fund and Basic Salary for Mid-Month Joiners and LOP Cases?

Dear All,

a) We have an employee whose joining is in the second week of the month. Now, how to calculate provident fund and his basic salary?

b) In case of LOP, how to calculate provident fund and what would be the basic salary if his actual basic salary is $10,000.

Thank you.

Basic Wage Allocation and Loss of Pay (LOP) Impact

There is no standard law specifying that the basic wage must be a certain percentage of the total Gross/CTC. Companies typically allocate between 35% to 60% of the total gross towards basic wages. Some companies adhere only to the basic wages specified in the minimum wages declared by the state government. The court has also directed that the EPFO cannot take any action against employers if they allocate the minimum wages to allowances.

In the case of Loss of Pay (LOP), the basic salary will also be reduced proportionately. For example, if the CTC or Gross salary of an employee is Rs. 10,000/-, the basic wage should align with the percentages mentioned in the first point.

You pay 12% of the wages the employee earned from the date of joining until the month-end as his EPF contribution.

Salary Calculation for Mid-Month Joiners

The salary is payable to the employee depending on the number of days actually worked. If an employee has joined in the middle of the month, you have to pay their salary from the date of joining to the last day of the calendar month. Salary includes basic pay, DA/VDA, and any other allowances, all proportionate from the date of joining.

Calculating Loss of Pay (LOP) and Provident Fund (PF)

Your query is about Loss of Pay (LOP) towards PF. First, determine the number of days payable in that month, let's say 30 days. Deduct the LOP from this. The remaining days are payable. The PF contribution will be calculated based on the actual wages/salary earned, including Basic and DA.

Regards,
Adoni Suguresh
Labour Laws Consultant