Navigating PF Contributions: How Should We Handle These Employee Cases?

Provident Fund (PF) Contribution Situations

I have two situations regarding PF.

1) An old employee had PF contributions but withdrew them after discussing with the MD. Her PF Basic was more than 6,500, and so it continues to date without PF. The current PF Basic is 9,500.

2) An employee who joined in December 2014 has never contributed to PF and has been continuing without PF to date. The current PF Basic is 4,500.

Now, as per the revised PF norms, PF is mandatory for employees with a PF Basic of less than 15,000.

What should be the effect on the above two employees? Can we increase the PF Basic of the first employee to 15,000 to solve the issue? For the second employee, the salary is less than 15,000 anyway and has never contributed to the PF fund, so can the employee be exempted, or should we start PF mandatorily?

Please revert at the earliest.

Regards,
Darshana

Both employees are covered under the PF Act. By increasing the basic salary to Rs 15,001, with retrospective effect (in the books also), you can exclude the first employee from PF. In the second case, since the gross salary itself is less than Rs 15,000, you cannot increase the basic pay to Rs 15,001. You have to contribute PF with effect from the date of joining, i.e., December 2014. Also, the delay will attract interest and damages.

Madhu.T.K

Dear Sir,

Thank you for your response. Can we avoid the PF by taking Form 11 declaration for the 2nd employee since the employee has never contributed to PF before?

Regards,
Darshana

Fraudulent Activity in PF Contributions

I think the company you are in is involved in deliberate fraud. In the first case, the employee has withdrawn his PF even though he is still working and continues to work in the firm, and is not contributing to his PF anymore. This can happen only with the active participation of the management in fraud. In any investigation, the company will be required to pay the entire amount of unpaid statutory dues along with a penalty. There would also be criminal prosecution of the management and the employee for deliberate false declaration.

In the second case, there is a more blatant violation of the law. It is very clear that under the law, the employee was subject to PF but it was not paid. The exemption is only applicable for an employee who started with a salary higher than the limit of Rs. 15,000. Further, the employee must not have contributed to PF before and must not have an active PF account. Where his salary does not exceed Rs. 15,000 anyway, where is the question of an exemption?

Filling up Form 11 should be done carefully because any false declaration, especially where there is evidence that it has been falsified, is likely to get you into serious trouble.

PF Exclusion Conditions

As rightly said by Saswata, the exclusion by way of taking a declaration in Form 11 is available only to those whose PF qualifying salary is more than Rs. 15,000. In your case, the employee is getting less than Rs. 15,000, and even if he has never been a PF member in the past, he should be under PF cover in your organization because his salary is less than Rs. 15,000.

That means for excluding a new employee, two conditions are required to be satisfied: first, his PF qualifying salary (which may be basic salary or basic + Dearness allowance or even gross salary without HRA as proposed) should be more than Rs. 15,000, and second, he should not have a PF account in his previous employment or if he had a PF in his previous employment, had withdrawn the accumulations before joining the present organization.

Regards, Madhu.T.K

EPF Membership and Rehiring Considerations

Just a thought to add another point: once an employee is covered under EPF, he/she will continue to be a member until retirement or withdrawal, regardless of whether their basic salary is increased to 15,001 or not. Enrolling an old employee with a new number always carries risks. Please note that the same employee, after being relieved (or settling PF), should not be rehired without a sufficient break in service. Otherwise, the employee may claim continuity of service, posing a risk and liability to the organization.

As an HR professional, it is crucial to persuade management to cover all employees earning a salary of less than 15,000 per month.

Regards

Thank you for your responses. The company that I work for is neither fraudulent nor is the management corrupt. We obviously have a PF number and cover about 1500 employees every month.

Employee Financial Background and PF Contributions

Regarding both employees, they are office-based and come from financially lower backgrounds. For the first employee, after a few months of continuing PF contributions, they wanted to withdraw it because they needed the amount in hand. This was allowed as the basic salary of the employee was more than 6500. The mistake was that it was overlooked after the September 2014 rule change. We are currently in the process of resolving this issue.

As for the second employee, they were in a similar financial situation, and the employee was supposed to be with us for three months for training. We started with a kind of stipend initially but continued later on. We are now calculating the missing months and contributing both shares for this employee.

Thank you all again for your views.

Regards,
Darshana

In the first case you have referred to, allowing any employee to withdraw the PF while still continuing to work is a fraud. It is a criminal liability for fraud by both the employer and the employee. You cannot say your company did not know she had not actually resigned when she came back to work the next day. You can't say you didn't know she was still employed with you when you signed the PF withdrawal form. You can't say Form 11 was false when she was working with you anyway, and you knew her previous PF was still not withdrawn.

The employee wanted to commit fraud since she wanted the money. Actually, I suspect your statement above is also fake. She did that because someone advised her that this way she gets the entire money and it does not go into the pension fund. You allowed the fraud to be made because you wanted to save the money. Sorry, your excuses are only excuses. If the matter is investigated, you will have no defense.

Of course, I am only making assumptions. Maybe your company is actually innocent. But I have seen too many such cases to believe it. I am sure you have other cases where it was done, but they are currently working with a salary of over ₹15,000 so you are not considering them.