PF in case of gross salary less than ceiling limit - Will it be 12% of gross salary for both employer and employee contributions?

We are keeping a ceiling limit for PF at 15k; however, an employee joined at the end of the month. In that case, his gross salary for the month is less than 15k. What will the employer and employee contribute towards PF in this scenario? Will it be 12% of the gross salary for both employer and employee contributions?

You take the basic salary that qualifies for PF for the number of days the employee has worked and pay PF for that amount. Suppose his gross salary is Rs. 25,000, but the PF qualifying salary is Rs. 15,000. If he has worked for, say, 10 days only, take only Rs. 5,000 (15,000/30 x 10) as PF qualifying salary for the month and pay PF on that 5,000.

Thank you, Madhu, for your reply. Just to make sure I understood it correctly, could you please confirm if the following is accurate?

Gross Salary for 30 days: 45,000 Worked for 8 days, Therefore, Gross salary: 12,000 PF ceiling limit is: 15,000 PF: (15,000/30)*8 days = 4,000

Please let me know if this is correct.

Yes, this is correct. In the ECR, you can mention 22 days (in the case of a month having 30 days) or 23 days (in the case of a month having 31 days) as NCPs (non-Contributory Periods) against this employee who has worked only for 8 days in the month.

Madhu sir, in this case, what will be the basic salary because PF should deduct on Basic + DA. In the above case, just assume that the salary break up is as follows:

Gross = 45,000

Basic (50% gross) = 22,500

HRA (50% of Basic) = 11,250

Other allowances = 11,250

The actual PF deduction is 1800 (15,000 * 12%) ceiling to 15,000.

But in the above case, the employee worked for 8 days and earned a gross of 12,000. Then it will automatically affect the Basic and other components, right?

Then his basic is 6000 (50% of earned gross) then PF will be 6000 * 12% = 720.

Is this correct?

Correct me if I am wrong.

Thank you, sir.

If your gross salary is Rs 45,000 and the PF qualifying salary is Rs 15,000, then there is no relevance for Rs 22,500, which is 50% of the gross as basic. What is required is the PF qualifying salary. If you contribute based on Rs 15,000, then take it as the base. From this Rs 15,000, find the salary for PF after deducting the loss of pay leave. If the employee has worked for 8 days, then their earned PF salary will be Rs 4,000 and the NCP days will be 22. The contribution should be on Rs 4,000.

Please understand that there is no law that mandates your basic salary to be 50% of the gross salary. Even if your basic salary is already above Rs 15,000 and you cap your PF contribution at Rs 15,000, you can have a different PF qualifying salary.

Thank you, sir. Just a few more doubts.

Employee salary is 22,000 Gross.

Basic is 11,000.

The employee worked for 24 days out of 30 days (6 days LOP). What will be the PF and ESI deductions in this case, sir?

My doubt is, will LOPs affect the basic salary or not?

PF cap is 15000/-, and actual basic are two different things. When we process salary, then basic is basic, which may be more than 15000/- but not the equivalent of PF ceiling 15,000/-. In case of LOP, proportionate deduction will be on basic and other allowances, not on the ceiling of PF (15,000/-).

Therefore, in the instant case, the basic will be 6000/- instead of 4000/-, and PF will be deducted accordingly.

S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions +91 98310 81531 skb@usdhrs.in USD HR Solutions - To Strive towards excellence with effort and integrity

I remember on the same subject Nanu had a different opinion. I am taking it again now.

It is true that Basic has nothing to do with PF salary when you restrict the PF contributions to Rs 15000. When you take Rs 15000 as PF qualifying wages, naturally, it should be the wage on which your contributions as well as NON-CONTRIBUTION should rest. With 22 days NCPs in a month of 30 days, how can the PF contributing wages be Rs 6000? Since he had worked only for 8 days, his earned PF salary is Rs 4000 at the rate of Rs 500 (15000/30) per day. In the ECR it will appear as follows:

Gross salary: 6000 PF Wages: 4000 EDLI Wages: 4000 PF Contribution: 480 PS contribution: 333 EDLI: 20 NCP Days: 22

In the second example of Harry, since the notional salary exceeds Rs 21000, the employee would be out of ESI coverage. Suppose that he has crossed Rs 21000 this month and therefore, he should continue in ESI till September, then his ESI will be on the actual Gross earned, i.e., 17600

Coming to EPF, his Basic salary is less than Rs 15000 and as such he is contributing on his actual basic only (assuming that the employer takes only the actual basic salary wherever it is less than Rs 15000 and no other allowance is considered to make the contribution at least on Rs 15000) and that is Rs 11000. The LOP will be deducted from 11000, and the earned PF salary will be Rs 8800 (11000/30*24) and contribution will be paid at 12% on 8800. In this case, the ECR will show the gross salary as 17600, the PF salary as 8800, and NCP days as 6 days. In the month in which he has worked for all the 30/31 days (without any NCP days) the ECR will be like:

Gross: 22000 PF wages: 11000 NCP days: 0

Dear Mr. Madhu,

Basic Salary - 30,000/-, Other Allowances - 30,000/- & Monthly Gross - 60,000/-. 5 days LOP. Actual earning Basic - 25,000/- and other allowances - 25,000/-. PF contribution restricted at 15,000/-. Does it mean that the employee will get 5 days LOP on 15,000/- considering his basic? The answer is no.

In actuality, the employee will get 50,000/- as the monthly gross, and PF contribution will be on 15,000/- so long as the earned basic is 15,000/- or more after LOP.

I have faced several cases with EPFO in different States- WB, AP, Karnataka, Maharashtra, Odisha, etc., and the above is the stand of EPFO.

Warm Regards,

S K Bandyopadhyay (WB, Howrah) CEO - USD HR Solutions +91 98310 81531 [Login to view] USD HR Solutions – To Strive towards excellence with effort and integrity

When the salary for the purpose of PF is Rs. 15,000, the LOP should be proportionate to Rs. 15,000, and only then will equity be met. If we contribute it based on Rs. 15,000 itself because even after the deduction the salary would still be above Rs. 15,000, then the employer would be unjust to those who have worked all days. For example, in the case of an employee with an actual gross salary of Rs. 60,000, the employer will contribute Rs. 1,800 even if the employee has worked for 8 days, as the earned gross will still be above Rs. 15,000 (it should be Rs. 16,000 for 8 days). However, for an employee with a lower salary, say Rs. 15,000 per month, the contribution for each day of absence will decrease.

Furthermore, if PF qualifying salary is shown as Rs. 15,000 when there are days of leave without pay, no NCP days can be shown. In case of loss of pay, the employee should indeed bear the consequences in the form of NCP.

In the EPF records, when an employee's salary is Rs. 15,000, why does the EPFO insist that the PF contribution should be based on Rs. 15,000 even during non-contributory days?

While it is true that Enforcement will conduct a 7A enquiry based on the records, I doubt they can demand full contribution on Rs. 15,000 when the employee has not earned the full salary. If your Payroll system is linked to attendance and PF monthly returns (now ECR), there will likely be a mismatch in NCP. Previously, we used to generate NCP days to be submitted with pension requests. If extracted directly from the payroll, it would indicate NCP days, but the PF records would lack NCP since the employer had remitted PF based on Rs. 15,000 even during NCPs. ECR now has a separate column for NCP. I believe we can only show the non-contributory periods if we display the PF qualifying salary as less than Rs. 15,000, proportionately deducting the LOP from Rs. 15,000.

Thank you, Madhu, for the reply. So, this 4000 rupees contribution will be from the employer, and 4000 rupees from the employee's side, is that correct?

Gross Salary for 30 days: 45,000 Worked for 8 days, Therefore, Gross salary: 12000 PF ceiling limit is: 15,000 PF: (15000/30)*8 days = 4000

LOP days are applicable for those employees whose contribution for EPS will be less than ₹15,000 due to the effect of LOP to calculate the pension properly. Even after LOP, if the basic is more than ₹15,000 and PF contribution is made up to ₹15,000 along with EPS – there will be no effect of LOP.

Therefore, there will be no effect on PF and EPS contribution and accordingly no effect of LOP until the basic is below ₹15,000 and contribution is less in PF & EPS.

In case the employee and organization are contributing on a higher salary PF and EPS, then any LOP should be considered for both PF and EPS.

The above is a bit complicated and difficult to understand. I had a detailed discussion with several Asst. PF Commissioners where one or two of them clarified the items, stating that in case of LOP, if the basic is more than ₹15,000 and the contribution is restricted to ₹15,000, then LOP should not be considered as the contribution is paid on ₹15,000.

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Thank you so much for all the responses. This is very interesting. For our one employee, below is the salary component:

Basic: 10800
HRA: 5400
Other allowance: 10800
Gross: 27000

In this case, PF contribution by employer and employee is 1800 rupees each (ceiling limit 15,000). Is this correct?

Let's say if this employee started working at the end of the month and worked only for 3 days out of 30 days. In that case, below is the salary component:

Basic: 1080
HRA: 540
Other allowance: 1080
Gross: 2700

In this case, PF contribution by employer calculated on ceiling limit: = (15000/30)*3 days, which will be 1500 rupees. Also, employee contribution will be 1500 as well.

Please let me know if I am correct.

PF contribution will be on 1080 + 1080 = 2160/- not on 15,000/-.

S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions +91 98310 81531 [Login to view] USD HR Solutions – To Strive towards excellence with effort and integrity

Mr. Nanu should have discussed the issues with so many APFCs, but did they ever answer one question: how can the contribution be the same for two employees whose PF qualifying salary is the same, i.e., Rs 15,000, when one person has not worked for all the 30 days or when there are some non-contributing periods?

@Madhu Sir, Thank you for your quick responses.

Can you please let me know if this is correct?

For us, one employee salary component is as below:

Basic: 10800
HRA: 5400
Other allowance: 10800
Gross: 27000

In this case, PF contribution by the employer and employee is 1800 rupees each (ceiling limit 15,000). Is this correct?

Let's say if this employee started working at the end of the month and worked only for 3 days out of 30 days. In that case, below is the salary component:

Basic: 1080
HRA: 540
Other allowance: 1080
Gross: 2700

In this case, PF contribution by the employer calculated on the ceiling limit: = (15000/30)*3 days, which will be 1500 rupees. Also, the employee's contribution will be 1500 as well.

Please let me know if I am correct.

Yes. If the employee had worked only for 3 days, then certainly the PF qualifying salary should be Rs. 1500, and the contribution by the employee should be Rs. 180 (12% of 1500). The employer's share should also be Rs. 180, bifurcated as Rs. 125 towards EPS and Rs. 55 towards PF.

PF Gross = Basic + DA + other allowances (except production-related incentives, HRA, etc.) as per the Apex court verdict and definition of Basic Wages.

PF & EPS contribution is always determined based on the actual earned PF Gross, even if the organization decides to limit the contribution up to the statutory limit (currently 15,000/- per month). When the earned PF Gross exceeds 15,000/- per month, it is restricted to 15,000/-.

Under no circumstances can the actual PF Gross of any employee be restricted to 15,000/- per month, as the contribution has been limited to 15,000/- per month - these two are different.

Now, how to deal with LOP cases. In the case of any LOP, the concerned employee always receives less salary than their notional salary, resulting in a loss to the employee. Secondly, how to show LOP days in the EPFO Portal. As long as the contribution is made on 15,000/- per month, there will be no LOP shown in the EPFO portal. However, when the PF and EPS contribution falls below 15,000/- or the notional salary, whichever is less, LOP days should be reflected in the EPFO Portal for EPS calculation.

Let us take the example of an anonymous friend:

Basic - 10,800
HRA - 5,400
Other allowances - 10,800
Monthly Gross - 27,000/-

Here, PF Gross is 10,800 + 10,800 = 21,600/- per month. The organization has restricted PF & EPS contribution up to 15,000/- per month.

If there are 5 days of LOP, then the PF Gross will be 21,600/30 x 25 = 18,000/-. Therefore, the PF and EPS contribution will be based on 15,000/- up to the statutory limit as per the organization's policy. There will be no LOP shown in the EPFO portal, as the contribution has been made on 15,000/- per month.

Similarly, in the case of 3 days present, the PF Gross will be 1080 + 1080 = 2160/-, which is far below 15,000/-. The PF & EPS contribution will be based on 2160/-, and LOP days should be shown in the EPFO Portal. The number of LOP days shown in the EPFO portal will be 18 days instead of 27 days. The calculation is (15,000 - 2160) / 720 (per day PF gross) = 18.

All of the above are mathematical logic, nothing subjective. In the case of 5 days LOP, it will be shown in payroll PF gross 18,000/-, but if we follow Mr. Madhu T K's logic, it will be below 15,000/-, which will not be accepted by the EPFO as well as the employee.

In labor laws, there are certain areas where strong mathematical logic is essential - Factories Act OT single hour and double hour concept, leave earning concept, Bonus Act for organizations with one balance sheet working in more than one state, and minimum wages that randomly vary in different skill categories in different states with a significant amount of allocable surplus to determine the percentage of Bonus, determination of wages as per the new labor codes, etc.

@Mr. Madhu T K - Lastly, please do not address me as Nanu but address me as S K Bandyopadhyay or in short SKB, which is my name.

S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions +91 98310 81531 skb@usdhrs.in USD HR Solutions – To strive towards excellence with effort and integrity

Dear S K Bandyopadhyay,

Firstly, let me beg pardon for addressing you by your username.

Your observations about PF qualifying salary are not correct if viewed from the ethical and logical perspectives. If your establishment has been paying contributions on Rs 15,000 even in the case of a few days of Leave Without Pay (LOP), then you must continue this practice as directed by the PF Commissioners. However, this process is incorrect and can be challenged in court. The contribution payable by the employer for an employee who has worked for 30 days should never be equal to that of an employee who has worked for only 10 days. Contributing on Rs 15,000 for both these employees goes against ethics. In the scenario where the non-contributory period for an employee who worked all days and one who worked for just 10 days is equal, there is a legal error. The EPF Officers might have mistakenly directed you to pay on Rs 15,000 since there is no legal basis supporting their observation. For the EPFO, Rs 15,000 is considered the salary when the employer limits contributions to that amount. The EPFO cannot demand contributions on any salary exceeding Rs 15,000.

We will delve into the landmark Marathwada Gramin Bank case (Supreme Court) in another two days, not tomorrow, as I won't be logging into CiteHR tomorrow due to prior engagements.

Dear Madhu T K,

Can you please explain the Marathwada Gramin Bank case judgment in this regard? I am having the same doubt.

Link: https://www.lawyersclubindia.com/judiciary/marathwada-gramin-bank-karamchari-sanghatana-vs-management-of-marathwada-gramin-bank-2011-employer-cannot-be-compelled-to-pay-provident-fund-beyond-the-statutory-provisions-of-labour-law-5373.asp

Regards,
Sheena Philip

@Sheena Philip, I believe I have explained the matter very clearly in the preceding discussions. In the Marathwada case, the Supreme Court has said that the EPFO has no right to demand any contribution on any wages above Rs 6500 (this can be read as Rs 15000 in the present context). When the salary that qualifies for PF is Rs 15000, the LOP days should be proportionately deducted from that qualifying wage, i.e., Rs 15000 and not from the actual wages because the actual wage is nowhere in the picture; only PF wages are considered. For every day lost without wages, there should be a loss of contribution. That is why I am repeatedly saying that contributions for non-contributory days should be deducted from Rs 15000.

Dear Madhu T K,

Below was the answer given on https://www.epfindia.gov.in/site_en/FAQ.php - Monthly Pay for calculating contributions to be paid under the Act.

Q.384 Monthly Pay for calculating contributions to be paid under the Act?
Ans: The contribution shall be calculated on the basis of monthly pay containing the following components actually drawn during the whole month whether paid on daily, weekly, fortnightly, or monthly basis:
- Basic Wages
- Dearness allowance (all cash payment by whatever name called paid to an employee on account of a rise in the cost of living)
- Retaining allowance
- Cash value of any food concession

In that, it is given components actually drawn.

Drawn Basic + DA can vary from month to month due to LOP. i.e. Drawn Basic + DA can go below Rs. 15000 due to LOP for an employee who was drawing more than Rs. 15000 in the earlier months. In such a case, we will be calculating based on the drawn on the actually drawn Basic + DA salary.

E.g., Based on FAQ found on https://www.epfindia.gov.in/site_en/FAQ.php
Basic + DA = Rs. 17000
Number of days worked = 24 Days
LOP = 6 Days
Drawn Basic + DA = Rs. 13600
Employer PF Contribution = Rs. 13600 x 12% = Rs. 1632

But as per your explanation, PF Contribution should be Rs. 15000/30 * 24 x 12% = Rs. 1440. This is beneficial for the Employer. Can you please provide any reference supporting your workings? It would be more helpful.

Thanks & Regards,
Sheena Philip

As per the FAQ, it is true. But what about Pension salary? On which amount should the pension be calculated? For 24 days, you cannot have Rs. 13600 as the Pension qualifying salary; it should be Rs. 12000 only. Suppose the actual salary is much higher, say Rs. 60000, and the employee takes a few days leave, and still, the PF salary would be within Rs. 15000. Is it right that the employer should contribute the same amount as the employee's contribution?

If you follow the FAQs, please adhere to them. I don't know the clerical side of preparing ECR, etc., and I'm unsure if the system will reject the entry if you put Rs. 13600 under EPF salary and Rs. 12000 as EPS salary.

When PF is capped at Rs. 15000, ideally, it should be the salary for all purposes of EPF & MP Act, which includes PF, Pension, and EDLI. Then EPFO has nothing to do with the gross salary of the employee, whether it is Rs. 15001 or two lakh rupees; the EPFO should not have anything to do with it.

Dear Madhu.T.K,

For both EPS and EPF, we will be showing Rs. 13600 only. Most employers calculate it this way. Your point was logical and beneficial for the employer but not for the employee. If we can find a source to support this logic, we can adopt this approach (i.e., consider Rs. 12000 as PF Wage as per the example above). Please share any sources you find supporting this logic. It would be helpful to update the old practice.

Regards,
Sheena Philip

The only logic is that an employee who has been on leave without pay should not get a single rupee benefit from the employer more than what an employee who has worked for the entire month should get.

Let us take another example: the gross salary (or Basic and DA part only) is Rs 120,000. His PF contributing salary is Rs 15,000. This employee has worked just for 4 days in a month. Naturally, his salary for that month would be Rs 16,000. Should the employer contribute Rs 1,800 towards PF? Shouldn't it be unfair that he contributes the same amount as he does for an employee whose salary is Rs 15,000 but has worked for the entire 30 days?

Now coming to the number of days in the ECR, is it 4 days or 30 days that you will put for this employee? When there are 26 days' NCPs, how can you show Rs 15,000 as Pensionable salary? Obviously, in respect of this employee, the pensionable service will be more even though he has worked for very fewer number of days. Is this right?

It is okay if the contribution is on actual salary; you can show the actual salary (Rs 16,000 in this example or Rs 13,600 in your previous example) under the PF account. Still, you cannot put Rs 15,000 as Pension salary because the pension salary for 4 days cannot be Rs 15,000 but Rs 2,000. Then only the non-contributory days would get established in his service. If the pension is based on pensionable service and if the pensionable service is based on days worked, you cannot have Rs 15,000 as salary in respect of an employee whose salary is higher and even after the deduction for being absent, his salary exceeds Rs 15,000.

The similar kind of working is adopted in calculating the bonus payable in respect of an employee whose bonus qualifying salary is more than Rs 7,000. In such cases, we calculate the bonus assuming that the salary is Rs 7,000 or the notified minimum wages, whichever is higher, right? In such a case, the LOPs shall be deducted from 7,000 or the notified wages. The Act has permitted such proportionate deduction also. By this, an employee who has taken leave without pay would be getting a lesser amount of bonus than an employee who has not taken any leave without pay, even if the gross salary of the former is higher than the latter. This can also be illustrated with an example.

The bonus qualifying salary of two employees, A and B, is the same, i.e., Rs 12,000 (being the statutory minimum wages). Their actual Basic and DA part of the salary is Rs 20,000. Since they come under the "7,000 or minimum wages fixed brackets of the bonus qualifying salary, we can take Rs 12,000 and their base for the calculation of Bonus. Suppose that the company is declaring a bonus of 8.33%. Then the annual bonus for someone whose monthly salary is Rs 12,000 would be roughly Rs 12,000. Suppose that A has had 10 days' leave without pay during the financial year (for which the bonus is being calculated). Then the bonus should be calculated on an earning calculated based on a salary after deducting the LOP proportionately from the base amount. That is if 12,000 is the monthly salary, it would be Rs 144,000 for the year. The daily average of 12,000 is equal to Rs 400. If the salary were Rs 12,000, the employee would have subjected to a deduction of Rs 400 each if he had taken leave without pay. Then for 10 days, it would be Rs 4,000. Then the annual Bonus qualifying salary would be Rs 140,000 and the bonus @ 8.33% would be Rs 11,662 whereas for B who has not taken any LOP, it would be Rs 12,000.

I clearly understand what you are saying. I only need the source that clearly supports this working to implement it. Any kind of clarification or communication of EPF India or any judgments in this regard, since EPF Act and scheme are silent on this matter.

NCP is not mentioned for higher wage employees when their PF wages drawn that month are above Rs. 15,000. NCP is mentioned only when PF wages drawn that month are below Rs. 15,000, and this is calculated as explained by S K Bandyopadhyay in earlier replies in this thread since the PF cap is considered on actual drawn wages. This is what most of the employers are following.

Regards, Sheena Philip

I don't have any supporting evidence because nobody should have questioned it. You can follow the way you are following, but I have been following the practice as explained by me, and no EPFO authority has objected to it.