Navigating PF Deductions: Can We Adjust Contributions for a New Hire's Higher Salary?

Hello all, I'm working as an HR consultant in a service-based company and I wanted clarification regarding the provident fund. We, as an organization, are deducting Rs. 1800 PF from the employees and keeping Rs. 15,000 as the basic amount. However, we are about to hire a software engineer for one of our client projects, and he wants the PF to be deducted based on his basic salary since his CTC is higher.

So, I just wanted to know:

1. Can we go ahead and have his PF deduction based on his basic salary as per his request?
2. Is it mandated for the employer to contribute the same amount to PF as the employee?
3. Can we only deduct the PF as per the employee's wish and deduct Rs. 1800 from the employer?
4. Will it be an issue for other employees if we proceed with this arrangement as an exception for this employee?

Yes, you can deduct the software engineer's PF based on his requested basic salary.

Yes, it is mandatory for the employer to contribute the same PF amount as the employee. You can deduct the PF amount based on the employee's wish and also contribute Rs. 1800 from the employer's side.

It shouldn't be an issue for other employees if you treat this arrangement as an exception for the software engineer.

Hi, Employer and employee, on mutual consent, may contribute based on the actual basic salary instead of restricting it to Rs. 18,000. However, it has to be an equal share. If the employee is more keen on saving money in PF, you may suggest the employee consider VPF. Thank you.

You have to compulsorily deduct PF based on the statutory limit (Rs. 15,000/-). Additionally, if an employee desires to save more in PF, they can opt for VPF (Voluntary Provident Fund), where they need to contribute more to PF. However, the employer's contribution is based on the statutory limit, as suggested by our member.

Please note that EPF is not only based on the basic wages; it also includes other allowances commonly paid as wages apart from HRA.

If any employee's basic wage exceeds Rs. 15,000, the contribution towards EPF shall be restricted to Rs. 15,000, with the employee contributing Rs. 1800. Additionally, ensure that everyone is entitled to EPS contribution.

Options for EPF Contribution

1) Yes, you can consider EPF on the entire basic wages without a ceiling limit, as per the employment contract. It is advisable to have a joint declaration in place.

2) Employers may choose to restrict the contribution to Rs. 15,000 or an amount equal to the employee's contribution.

Hi Manasa,

Please note that the PF ceiling is 12%, and it amounts to Rs. 1,800 on Rs. 15,000. When you proceed with PF deduction, the employer is mandated to contribute an equal amount. This arrangement will not coincide with the arrangements of the other employees.

Regards

I think your post has some confusion. It looks like the engineer is trying to reduce his PF contribution, not increase it.

Rules for PF Contribution

The rules you need to follow are as below:

1. You need to deduct 12% from his wages, defined as gross (-) HRA and OT. Any other allowance that is not given to all, not mandatory, and given only to defray special expenses of working at that place will be eligible for deduction from gross wages to get to PF wages. So it is definitely not on "Basic" as you defined it but as per the Supreme Court order of February 2019.

2. The ceiling of salary for computation of PF is ₹15,000 a month. So if the computed PF is more than ₹1,800, then you are required to deduct only ₹1,800 and give an equal amount from the employer's side.

3. If the employee wants to contribute higher, he needs to give a letter asking for an additional amount to be deducted as Voluntary PF. However, the total deduction under all heads cannot exceed 50% of gross wages excluding overtime.

4. The employer is under no obligation to match the PF deduction beyond ₹1,800 per month but can do it if it so wants.

You can go ahead and have the PF deduction for the software engineer based on his basic salary as per his request. The Employee Provident Fund (EPF) allows employees to contribute a higher percentage of their basic salary to the EPF voluntarily. In this case, the software engineer can choose to contribute more than the default 12% of his basic salary to the EPF.

Yes, it is mandated for the employer to contribute the same PF as the employee. The employer is required to match the employee's contribution to the EPF. The total contribution, which includes both the employee's and employer's share, should be deposited into the employee's EPF account.

No, the employer cannot deduct a fixed amount of Rs.1800 from the employer's side only. The employer's contribution to the EPF should be equal to the employee's contribution. If the software engineer is contributing more than the default 12% of his basic salary, the employer's contribution should also be increased proportionately.

It may not be an issue for other employees if you make this arrangement as an exception for the software engineer. The EPF allows employees to voluntarily contribute a higher percentage of their basic salary to the EPF, so other employees may also choose to do so if they wish. However, it is essential to ensure that the EPF contributions for all employees, including the software engineer, are calculated and deposited correctly to comply with EPF regulations.

It is advisable to consult with your organization's HR or finance department and also with a legal or financial expert to ensure that you are adhering to EPF regulations and making the necessary adjustments for the software engineer's request appropriately.

I am sorry, Deepti, but you are wrong in your post. The employer is not required to contribute more than Rs. 1800 even if the employee wants to contribute more. They can do so voluntarily, but it is not compulsory.

Please refer to point 16 of the FAQ on the PF website: https://www.epfindia.gov.in/site_en/FAQ.php