In India, the Provident Fund (PF) is calculated based on the concept of basic wages and dearness allowance (DA). The reason for considering a figure higher than the capped amount of 15,000/- for PF computation is to ensure that employees receive the maximum benefit under the PF scheme.
The Employees' Provident Fund (EPF) Act mandates that PF contributions are calculated as a percentage of the basic wages and DA. By setting the basic wages at 16,000/- along with DA, employers ensure that employees' PF contributions are calculated on a higher amount, leading to increased savings for the employees over time.
Additionally, maintaining a higher basic wage + DA helps in providing employees with a solid financial base for various other benefits and calculations within the organization. It impacts gratuity, bonus calculations, and other statutory benefits that are linked to the basic wage component.
While the PF wages are capped at 15,000/-, organizations often opt to keep the basic wage higher to facilitate better savings and benefits for their employees. It is a strategic move to enhance employee welfare and financial security in the long run.
Therefore, looking at a basic wage of 16,000/- along with DA, even though it exceeds the PF cap, is a proactive measure to ensure comprehensive employee benefits and financial stability. This approach aligns with fostering a positive work environment and supporting employees' financial well-being.