Navigating PF Contribution Caps: Can Employers Set Different Rules for New and Transferred Employees?

Establishing a New Factory and PF Contribution

An employer is establishing a new factory, and most of the employees will be transferred from the existing functional unit where employees' PF contribution is being paid on actuals, which is more than Rs. 15,000. In the new unit, he wants to cap PF contribution at Rs. 15,000, which is permissible based on the Marathwara Gramin bank judgment. Is there any prescribed formality concerning the PF Act? Please suggest.

PF Contribution for New Employees

In the meantime, they have also given an offer to some outsiders, and these prospective employees have put the condition that they should be allowed to contribute PF on the actual basic with equal contribution from the employer. Is it possible and advisable to have two different PF contribution systems? Please also suggest formalities and possibilities strictly with respect to compliance with the Act. Para 26(6) of the Scheme puts no burden on the employer to contribute, but in this case, the employer also has to contribute on the actuals.

I doubt whether you can do this exercise now. Once you start making contributions on actual wages, you cannot reduce or cap wages to Rs. 15,000 for making contributions to PF.

In this connection, please refer to Sec-12 of the Employees Provident Fund & Misc. Provisions Act, 1952, which is read as follows:

QUOTE
[12. Employer not to reduce wages, etc.—No employer in relation to [an establishment] to which any [Scheme or the Insurance Scheme] applies shall, by reason only of his liability for the payment of any contribution to [the Fund or the Insurance Fund] or any charges under this Act or the [Scheme or the Insurance Scheme], reduce, whether directly or indirectly, the wages of any employee to whom the [Scheme or the Insurance Scheme] applies or the total quantum of benefits in the nature of old age pension, gratuity [Provident Fund or Life Insurance] to which the employee is entitled under the terms of his employment, express or implied.]
UNQUOTE

Before implementing the proposed action, please check with PF authorities.

You can cap the PF contribution at any time as it is the specified statutory limit in the act. The courts have already decided on this matter.

However, if you are looking at CTC, then the action may amount to changing the terms of employment, and you need the concurrence of the employees. Also, they effectively earn less, so you need to be aware of the Industrial Relations aspect of it, especially on the matter of disgruntled employees.