How Should EPF Be Calculated for Mid-Month Joins or Absenteeism? Seeking Advice on Best Approach

Regarding EPFO

If an employee joins mid-month and/or has absenteeism leading to a loss of pay, then while calculating EPF for Employee and Employer, should it be on the basis of CTC or on Fixed Gross?

For example, suppose an employee has a CTC of 30k per month, and the Employee EPF amount is fixed at a statutory ceiling of Rs 1800 per month, leading to a fixed gross of Rs 28,200. Then the total EPF Deduction (Employee+Employer) is Rs 3600.

If they have attended for only 50% of the payroll period, then if CTC becomes Rs 15k per month and Employee EPF becomes Rs 1692 per month, leading to a fixed gross of Rs 14,100, the Employer EPF becomes Rs 900, which does not match the Employee EPF.

If the Employer EPF has to increase, then the Fixed Gross will be reduced, keeping CTC constant. So in this situation, what should be done?

My scenarios are:

1. Employer pays only Rs 900.

2. The CTC is kept fixed, and a recalculation is done to ensure Employee and Employer contributions match, leading to 50% CTC but <50% fixed gross.

3. Employer pays the extra EPF from out of their pocket as an additional cost.

Which is the proper recourse out of these three scenarios?

EPF Contribution Calculation

EPF contribution is usually calculated on basic and DA, with a maximum limit of this basic and DA set at 15k. In other words, employees with a basic wage up to or less than 15k are covered under EPF.

In terms of calculation, dividing the basic wages by 26 or the total workdays in a month will provide a day's wages. This amount is then multiplied by the actual present days to determine the monthly earned basic wage. The monthly wage multiplied by 12% represents the employee's contribution, while the monthly earned basic wage multiplied by 13% represents the employer's contribution.

Additionally, as per Supreme Court rules in EPF calculation, it is stipulated that allowances which are paid regularly, mandatorily, and universally are to be included in the basic wages for EPF calculations.

The Concept of CTC and Its Implications

Needless to explain the concept of CTC, which you are well aware of. I am of the humble opinion that nowadays, some members of the HR fraternity have an obsession with CTC, which certainly makes simple issues complicated apparently.

In my opinion, CTC can remain fixed for a particular year only if and only if no material changes occur as admitted in the contract of employment during the year.

Gross salary or wages are what is payable to the employee at the end of the wage period as determined in the contract of employment.

EPF Subscription Calculation

EPF subscription is calculated on the basis of the sum total of the components of the gross salary that are payable to all employees alike, including allowances other than HRA.

When the gross salary of an employee falls below the monthly salary due to reasons like joining the employment or exit in the middle of the month, or absence for a certain number of days in the month resulting in LOP, whatever gross salary payable proportionately has to be taken into account for determining the actual amounts of both the employer's and employee's contributions accordingly.

Then, what is the necessity of bringing in the CTC into this?

If I am wrong, please correct me with a convincing answer.

There is no need to do reverse engineering to find the EPF contribution based on a fixed CTC. Indeed, the actual monthly salary is to be calculated based on the attendance recorded for the month. Based on it, the employee share and an equal employer share of EPFO are to be reckoned. Then the cumulative value is the CTC and not the other way around.