Is It Legal to Deduct Both Employee and Employer Shares for EPF and ESIC from Salaries?

Hi, I am HR for XXXXX PVT Ltd Company located in Hyderabad. We are working for a Canadian client providing architectural drafting services, with nearly 50 employees.

My question is, do we deduct the employee's share and the employer's share from the employee's salary (for EPF and ESIC)? When an employee joins my company, I inform them that both shares will be deducted from their salaries. Employees agree to this at that time. However, is it legal for us to do this? Can we proceed in this manner? Please provide suggestions/advice.

Hi,

We should not deduct it from the gross salary, but you can consider it as part of the CTC for the employee.

As Jeevaratnam said, both employee and employer contributions can be part of CTC but cannot be part of GROSS. There will be two parts in the CTC structure: gross (Part A) and other benefits (Part B). All the employer contributions and retirement benefits can be part of Part B. In case you have already informed employees that both will be deducted from CTC, it should be okay from the employee's side. However, you need to be careful in devising this into gross and benefits to be compliant with statutory regulations.

If you need help in streamlining the salary structure or ensuring statutory compliance, please reach out to me at [Email Removed For Privacy Reasons].

Dear Bchrsnag,

Our esteemed members have given you the correct answer and also explained the underlying issues. However, I am surprised, how has your company been committing this for such a long time? Are you in HR? Or are you working in Operations (Line functions)?

In fact, the words "Employee's Share" and "Employer's Share" should have been very clear even to a barely literate person. It seems the company has been indulging in such unethical and illegal practices willfully.

EPF and ESI Compliance for HR Managers

EPF & ESI are to be extended to employees as per their respective Acts as a welfare measure. It is a statutory obligation for every company and HR manager to ensure compliance. There is no problem in paying Factory License Fee, Consent Fee, Income Tax, Service Tax, etc. The company only wishes to try to reduce expenses related to PF & ESI, which could create problems for HR managers. HR managers cannot agree to such malpractice solely to create problems. As rightly pointed out by Shri Rajkumar, the words "Employee's Share" and "Employer's Share" should have been clear even to a barely literate person.

It seems the company has been deliberately engaging in such unethical and illegal practices. It is the company's duty and liability to pay its contribution and to demonstrate to inspecting authorities (recover employees' portion from their salary). If the company deducts its portion from employees' salaries, it is against the law and illegal, inviting more trouble for HR managers. HR managers cannot support such malpractice and should present the case to management to avoid violations and future troubles which HR managers will have to face and resolve.

Regards

Subject: Query on PF Contribution Deductions in CTC Cases

Shri Madanagopalaswamy,

Kindly attach a copy of PF Dept's clarification regarding the deduction of both shares of PF contributions from the employee in CTC cases for our information and reference.

Thanks and Regards,

c.neyimkhan@gmail.com

11.1.16