Our payroll vendor says Employer contribution will form part of the CTC and won't form part of the deductions

Dear members

Q. Our payroll vendor says Employer contribution will form part of the CTC and won't form part of the deductions

This is the comment from our payroll vendor
The employer PF contribution from the deduction to be removed as the values are already deducted from the special allowance.

We had while devising our ctc structure shown Employers contribution in the earning part and again in the decution part.

Please advise

Regards
PKA

Hi,

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

Thank you Lakshmi Narayan Sir.

But I am unable to understand how will we 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 vendor is correct. Employer contribution of EPF,ESI etc., will be shown in CTC for an understanding of the cost of employee. If we deduct the same from salaries it will affect the earnings of employee. It is to be contributed by employer.