Can We Lower PF Deductions for Employees Earning Above Minimum Wage?

Sir,

Can we reduce PF deductions of an employee? The minimum wage of the employee is Rs. 10,000/-. We are paying him a higher gross salary of around Rs. 15,000/-. The employee is receiving a lesser amount in hand because PF is calculated on Rs. 15,000/-, and the current deductions are Rs. 3,600/-. Can we reduce the PF deductions?

Regards,
Tijji

No, you are not allowed to reduce the salary taken for PF purposes. It is a violation of Section 11 of the Act.

Hi Tijji,

Please review the details provided in the message. You mentioned that the gross is approximately 15000/-, resulting in an overall contribution of about 3600/- towards the PF.

It's important to note that PF deductions should be based on the basic salary, not the gross salary. By deducting on the basic salary, the total contribution towards PF will be lower, leading to a higher take-home pay.

Kindly verify this information.

A.B.

Thanks for the response. However, my query is if we keep the gross salary the same and cut PF on basic wages, i.e., say 2400, will there be any problems from the PF department? The difference in the gross and basic will be paid stating some other allowance, etc. Overall, no wages decrement for the employee but PF proportion would decrease, resulting in more cash in hand.

Hi Tijji,

The PF contributions are calculated based on the basic salary and not on the gross salary. Therefore, regardless of the gross salary amount, the deduction (and subsequent contribution towards the PF) will be determined by the basic salary. Consequently, if you maintain the basic salary at a lower level, the mandatory deductions (through PF) will be reduced, leading to more cash in hand for the individual.

I hope the concept is clear now?

Best of luck,
A.B.

The answer is dependent on what you have done earlier.

Have you shown basic at 5000 and indicated that you are voluntarily deducting the full amount? If not, then if you have actually shown basic at 15000 in the ECR, you cannot bring it down because you have already declared the basic, and you cannot reduce the basic amount.

Rs 3800 PF deduction on a salary of Rs 15000 means the company is deducting employers' contributions also from the salary. This is illegal.

He is probably talking in terms of CTC, not gross pay deductions.