Can We Offer Employees a Choice to Contribute 12% PF on Full Basic Salary Without a Ceiling?

Dear Seniors,

At present, we are following a ceiling method for PF contribution, which is 12% on Rs. 15,000/- max. Employees who earn above Rs. 15,000 in salary, we are contributing only Rs. 1,800 maximum.

Now, some employees in our organization want to contribute 12% to the PF on the entire basic salary, meaning there will be no ceiling amount of Rs. 15,000.

We seek your opinion on whether this is permissible under the PF Act and if it is allowed to contribute 12% on the entire basic for select employees.

We plan to offer employees the option to choose this method voluntarily, running two options concurrently: 1. With ceiling 2. Without ceiling. Is this arrangement permissible?

Please advise. Your input will be greatly appreciated.

Dear Colleague,

Statutory Contribution

As per the provisions of the Provident Fund Act and Schemes, there are two contributions:

- Statutory Contribution in which both the Employer and Employee contribute 12% each. Here, it is the prerogative of the employer whether to restrict to 15K or pay contributions for the full PF Wages. Legally, no one can question, provided the employer remits PF for 15K for all eligible employees. If you bring all employees to the net of full PF Wages for PF Contribution by both Employer and Employee, it will increase the financial burden of the employer and also reduce the take-home salary of employees. The PF Act does not insist on this. Hence, think several times and then decide on this. Our suggestion is to please restrict the contribution to 15K only. If it is done, it cannot be withdrawn later and it becomes very cumbersome in many companies.

Voluntary Contribution

In the case of Voluntary Contribution, the Employee can contribute over and above 12%, any percentage of contribution to the fund as savings (say 12% plus 15%, or 20% and so on) which he feels comfortable. Here, the employer is not under any obligation to pay any additional contribution, but he will continue to contribute at 12% only.

Look for a long-term focused approach.

Take Care,

Dr. P. Sivakumar
Doctor Siva Global HR
Tamil Nadu

Voluntary Provident Fund (VPF) Contributions

It appears from the original post that a few employees are interested in contributing to the Voluntary Provident Fund (VPF), while the rest are not. This practice is fully accepted under the PF Act and Rules. Employers have no involvement in this decision. Employees who wish to deposit VPF must provide written authorization to the employer for the deduction.

Regards, S K Bandyopadhyay (WB, HOWRAH) CEO-USD HR SOLUTIONS [Phone Number Removed For Privacy-Reasons] [Email Removed For Privacy Reasons] USD HR Solutions – To strive towards excellence with effort and integrity