Understanding PF Limits: Is 1800 the Maximum for a 36000 Salary?

Hi, I'm working as an HR in a startup firm. Could you please clarify my doubts regarding PF? Is it mandatory that the PF amount should not exceed more than 1800 if an employee has a basic salary of 36000?

Hi,

If anything contributing above the ceiling limit, then it can be considered as a Voluntary Contribution.

Clarification on EPF Contribution for Startups

The EPF amount for Employee Contribution can be deducted at 12% on the Basic + DA, with no upper limit. However, for the Pension Fund, Rs. 1250/- (8.33% of 15000) can be deposited, and the remaining amount will be deposited under EPF (Employer Contribution).

The notable point here is that you need to make a higher payment towards Employer Contribution as well, although you can include that amount in the CTC. There is an auto-calculation feature in portals, so you need not worry about the calculation part.

However, there will be higher payments for EDLI (A/c No. 21) and Admin charges (A/c No. 2 & 22) as well. If the number of employees is not high, you can proceed with this. But once you start depositing PF on a higher Basic, you can't reduce it. A higher basic salary attracts higher costs in other statutory areas as well (Bonus, Leave, Gratuity, Compensation, etc.).

As you mentioned that yours is a "just started up," please seek management approval to ensure they have proper fund allocation for this.

Regards

Disagreement on EDLI and PF Contributions

I have a disagreement with Pan Singh on the following:

1. Higher Payments for EDLI

For the calculation of EDLI, the salary can be subjected to a maximum of Rs 15,000. This means there is no need to pay EDLI for the entire Rs 36,000.

2. Reducing PF Contributions

Once you start depositing PF on a higher salary, you cannot reduce it. However, you can reduce it to Rs 15,000, provided the employees agree. The PF authorities cannot demand that since you have been contributing PF on Rs 36,000, you should continue to deposit it on Rs 36,000, and you cannot reduce it to Rs 15,000. PF authorities cannot say that in such cases section 12 of the Act, which says that the employer cannot reduce the wages in order to reduce their PF contribution. In Maratwada Gramin Bank's case, the Apex Court has ruled that the PF Organisation has no authority to require the employer to contribute PF on a salary above Rs 6,500 (at the time the limit was 6,500, and therefore, you can make it 15,000 now).

In CTC terms, as the contribution payable by the employer is shown as part of the total remuneration, reducing the contribution will lead to a reduction in the remuneration of employees. Therefore, without taking the employees into confidence, you should not do that. In the case of workers (who are covered by the Industrial Disputes Act), notice as per section 9A will also be required to be served before enforcing such changes.

Regards, Madhu.T.K