Understanding VPF and EPF: How to Correct Employee Contribution Mistakes and Handle Higher Wages?

Dear Seniors,

We just learned about VPF (Voluntary Provident Fund), which we were not aware of earlier. Due to this, our company is paying the employer share of Rs. 1800 (550 in PF & 1250 in pension) of the maximum wage limit of 15000, but we are deducting 12% of employees' actual basic pay, which is perhaps wrong, but we were not aware of it.

Queries on VPF and EPF Contributions

Kindly reply to the following queries:

Correcting Employee Contribution Errors

Can we correct this mistake by considering this higher contribution of employees in VPF? If yes, then what process do we need to follow, and is it mandatory to get permission for it from the EPF department?

Contribution for Employees with Higher Basic Wages

If our new employee's actual basic wage is more than 15000 and he is not interested in EPF deduction on his actual basic salary, then can we and the employee both contribute (1800*2=3600) up to the maximum salary limit of 15000? If yes, then how will we show it in ECR?

I look forward to your prompt reply.

Thank you,

Gajinder Singh

Your query is not clear. I interpret it as:

1. You have been paying PF on actual basic and DA, which may be higher than Rs. 15,000.
2. Now you want to bring it down to 12% of Rs. 15,000.

If that is your first query, then I would say that you can do it. There are a few things.

1. Did you contribute your (employer) share on actual Basic and DA, which is above Rs. 15,000?
2. If so, by restricting your contribution to 12% of Rs. 15,000, the Cost to Company will also come down. How are you going to compensate it?

If you are paying the difference under any head of salary, then there is no issue. For EPFO, it is not an area of concern. In Marathwada Gramin Bank, a case where the bank, which was contributing on salary above the threshold limit, decided to limit it to the statutory limit (it was Rs. 6,500 then but you can take it as Rs. 15,000 now), the EPFO had challenged it, saying that the employer cannot reduce the PF contributing salary. However, the Apex Court held that the EPFO has no right to demand a contribution on an amount higher than Rs. 15,000 (then Rs. 6,500). Therefore, you can start paying the contribution on Rs. 15,000, and the same will be reflected in your ECR, which is enough. There is no need to send any separate communication.

Coming to your second part of the question, I would say that if all the employees contribute on actual basic and DA and only a few, like the one who is joining, do not want it on actual but to be done on Rs. 15,000, then you can restrict his contribution to Rs. 15,000. To be on the safer side, you can get a declaration from that employee(s) undertaking that they want to contribute only on Rs. 15,000 or whatever is the statutory ceiling as per EPF and MP Act. This is just to make sure that in the future, if a higher amount of TDS is deducted from his salary, he should not come and raise it as a dispute.

In the ECR, against EPF salary (also under EPS and EDLI), you can show Rs. 15,000 against such employees. The same against other employees who contribute on higher/actual basic and DA, the EPF salary will be that higher amount.

Dear Senior,

Thank you for your prompt reply. I want to explain my query once again with the following examples:

1. If any employee's actual basic salary is Rs. 21,600, and the company is deducting his EPF Rs. 2,592 (12%) and paying its share up to the maximum basic salary limit of Rs. 15,000, which is Rs. 1,800 (Rs. 550 in PF & Rs. 1,250 in pension), is this correct? If it is correct, can we term this sort of EPF deduction as VPF (Voluntary Provident Fund)? If yes, do we need to take any written permission from the EPF department for it?

2. If this employee wants to pay his EPF share of Rs. 1,800 instead of Rs. 2,592 (12% of his actual basic salary), can we do this? If yes, then when can we start this, and which basic salary will we have to show in the EPF WAGES column in the ECR file, Rs. 21,600 or Rs. 15,000?

Thank you,
Gajinder Singh

Understanding Voluntary Provident Fund Contributions

Paying a higher contribution per se is not considered a voluntary contribution, but when an employee pays PF at a rate higher than 12%, it is considered a voluntary contribution. However, since there is a statutory ceiling of Rs 15,000, any contribution above Rs 1,800 is also termed a voluntary contribution. There is no requirement to inform EPFO either to contribute based on a higher salary or to contribute a higher percentage for any salary. Similarly, to revert to the old system of contributing within the statutory limit, no communication is necessary. For documentation purposes, it is advisable to obtain a declaration from employees who choose to contribute based on a higher salary or a higher rate or wish to withdraw the same, as applicable.

Dear Sir, Thank you for your reply. I have one more query in this regard:

If an employee wishes to reduce their EPF contribution from 12% of their actual basic salary to Rs. 1800, can we accommodate this upon their request? If so, when can we implement this change, and should we indicate their actual basic salary or Rs. 15000 (the Maximum Pay Limit) in the EPF WAGES column of the ECR file?

Thank you,
Gajinder Singh

An employee can opt for the deduction of PF on Rs. 15,000 at any time. When the PF qualifying wage becomes Rs. 15,000, in the ECR, you should show Rs. 15,000 as PF salary.