Understanding Employer's PF Contribution: How Does It Affect CTC and Pay-Slip Deductions?

I have started a pharma company in Maharashtra and want to include PF as part of the compensation. Please clarify how to treat the employer's contribution as part of the total salary, deductions, and CTC calculation. Will the employer's contribution be added as part of the CTC and then shown as a deduction in the pay-slip?

I request a detailed answer.

There are two issues - Monthly gross and CTC. Employer's contribution to PF is a part of CTC, not a part of gross monthly salary and Pay Slip. As the new labor code is approaching, it is better to start with CTC. If the employee is covered under ESIC, then deduct the ESIC amount and any other insurance contribution, if any, from CTC. Make it 50%, which will be Basic. From the remaining 50%, distribute to annual components and monthly components, including the employer's portion of PF. The pay slip will include the monthly gross amount only.

Example: CTC - 5,00,000/- per year. Insurance premium - mediclaim etc. 20,000/- per year. Therefore, CTC excluding insurance premium per year will be 4,80,000/-. 50% of the same is Basic i.e., 2,40,000/- per year and per month 20,000/-. Other items are also 20,000/- per month including the employer's PF.

Now to arrive at the monthly gross, let us consider Statutory Bonus 1000/- per month (8.33% of minimum wages 12,000/- per month), Employers' PF contribution @12% on 15,000/- or 20,000/- will be 1800/- per month or 2400/- per month. Annual leave encashment may be 15 days basic i.e., 10,000/- per year or 833/- per month. All the above will not appear in the monthly gross as those are yearly components or the employer's portion of PF. Now, if we deduct the above from the other 50% i.e., 20,000/-, the leftover amount will be 20,000 - 1800 - 1000 - 833 = 16,367/- per month.

Now, the monthly gross and pay slip amount will be 20,000 + 16,367 = 36,367. It may be possible to distribute 16,367/- into different pockets - HRA, CCA, SPL. ALLW, CEA etc. Depending on the remuneration structure of different organizations, the calculation will also vary.

S K Bandyopadhyay (WB, Howrah), CEO- USD HR Solutions

Understanding CTC and Employer's PF Contribution

The amount an employer spends on an employee to retain their service is called CTC. The CTC is not the actual salary of an employee; it includes salary, leave travel allowance, bonus, house rent allowance, employer contribution to PF, and medical reimbursements.

Thus, the employer's PF is part of CTC but is not shown on the salary slip.