Employer Contribution Confusion: Should It Be Part of CTC or Deductions?

Dear members, Our payroll vendor states that the employer contribution will form part of the CTC and won't be included in the deductions. This is the comment from our payroll vendor: "The employer PF contribution from the deduction should be removed as the values are already deducted from the special allowance." While devising our CTC structure, we displayed the employer's contribution in both the earning and deduction parts. Please advise.

Regards, PKA

Hi, If the Employer PF contribution is already shown in the CTC, then it should not reflect in the deduction column. In that case, the employee will suffer. The Employer PF contribution should be out of the Gross salary. The PF contribution money incurred by the employer towards the employee is shown in the CTC and directly remitted to the PF office. In the normal course, the Employer PF contribution should be paid separately without showing in the CTC, but very long back, it has become common to include the Employer PF contribution in the CTC.

Thank you, Lakshmi Narayan, Sir. But I am unable to understand how we will pass the journal entry if the employer contribution is taken as part of earnings and not deducted.

Here is the journal entry as per your response.
In this case, I will have an Employer Cont on the Debit Side, but it will get paid to the Employee by way of Bank.

By Basic Dr. 5,00,000
By HR Dr. 2,50,000
By Spl Allowance Dr. (B/F) 2,26,600
By Employer Cont. (EPF) Dr. 23,400

To Employee Cont. EPF Cr - 21,600
To Professional Taxes - Cr- 2,400
To Salary Payable - Cr - 9,76,000

It seems the vendor is correct. Employer contributions such as EPF and ESI will be included in the CTC to provide an understanding of the total cost of the employee. If we deduct these contributions from salaries, it will impact the earnings of the employee. These contributions are meant to be provided by the employer.