Is It Mandatory for Companies to Set 60% of Gross Salary as Basic Pay? Understanding EPF Contributions

Hello,

I need to know, is it compulsory for companies to give 60% as basic of gross salary? Also, how much to calculate in terms of EPF (12.5%) from the employee end and 13.5% from the employer end. I need to confirm this.

Thanks,
Ronaleen

Basic Salary and Mandatory Rules

For basic salary, the mandatory rule is that the Basic, DA, HRA, etc., should not be less than the wages notified by the State/Central Government (as applicable). The 60% pattern started just to reduce employer liability towards PF-ESI, Bonus, Gratuity, Leave payment, etc.

Also, note that the PF rate is 12% and 13.36% for employee and employer contributions, respectively. Similarly, the ESI rates are 1.75% and 4.75%.

However, please find attached a brief presentation on PF-ESI. I also obtained this information from Cite HR and made slight changes as per current laws. I hope this will clarify the basic points. If you have any further queries, please feel free to raise them.

Thank you.

Regards

Dear Priyadarsini,

It is not compulsory for companies to give 60% as basic; it may vary from 30-50%, ideally depending on the management. Employee PF - 12% Employer PF - 13.61%.

Please let me know if you require any clarification.

Thanks & Regards, T. Prathap Senior Executive - HR 9491771437

Dear Ms. Ronaleen,

If in your organization there are above 20 employees, as per the EPF and MP Act, you can deduct the PF amount at a rate of 12% of Basic for those whose basic is up to 15000. For existing PF members of your organization or if you have less than twenty employees, the PF rate is 10%. As for the employer, it should be 13.36% of the basic salary, broken down as follows: EPF-3.67%, EPS-8.33%, Admin Charge-0.85%, EDLI-0.50%, and EDLI admin-0.01%, totaling 13.36% for the employer.

I hope this provides the answer to your question.

Regards,
Anil

Salary and Wages Components for Contribution Purposes

For PF, normally it is Basic + DA only, where both put together are beyond the salary/wage ceiling prescribed in the Act. If it is less than the ceiling, you need to take into consideration all allowances except HRA. The 60% is only a thumb rule and has no legal sanction. Employee contribution is 12%, and the Employer's share is 13.36%. In case you have EDLI covered by separate insurance, you can seek exemption, and the employer's share towards EDLI to PF authorities need not be given. The Act requires the Employer to contribute up to the salary/wage ceiling prescribed by the Act. Anything beyond this is the employer's discretion but needs to be intimated to PF authorities. It could be started at any time during the financial year but can be stopped only after the end of the current financial year.

For gratuity and bonus, it is Basic + DA only.

Under the ESI Act, for the purposes of coverage of an employee, wages mean Basic, DA, and all allowances and any payment made to the employee in an interval not exceeding two months. Productivity-linked incentive is not to be considered as wages while determining the coverage under the act. However, for the purpose of contributions, productivity-linked incentive also has to be taken into account.

Regards, BGRamesh