Is It Legal to Offer Employees a Choice in PF Contributions? Seeking Advice on Salary Adjustments

Hi everyone,

Our company plans to introduce PF to all employees from April 2024 onwards. I would like to know if the following suggestions are legally accepted:

1) As we need to revise the salary break-up with the existing CTC only, we are planning to make the employer contribution fixed at 1800/-.

2) Employee contribution, giving a choice to employees - 12% of basic or 1800/-. (High-salaried employees can opt for 1800 if they don't want to contribute more).

Thank you!

Regards, Rincy Josy

Hi Rincy, The plan is to introduce PF to all employees from April 2024 onwards. We understand that you have certain suggestions regarding the salary break-up and employee contribution. We would like to inform you that the Employees' Provident Fund Act, 1952, governs the PF scheme in India, and any changes to the scheme must comply with the provisions of the Act.

Regarding your first suggestion

It is legally acceptable to fix the employer contribution at a specific amount, provided it is not less than the minimum contribution prescribed under the Act. However, it is important to note that the employer's contribution must be 12% of the employee's basic salary, dearness allowance, and retaining allowance (if any).

As for your second suggestion

It is permissible to give employees a choice between contributing 12% of their basic salary or a fixed amount of ₹1800. However, employees who earn a higher salary may choose to opt for the fixed amount if they do not wish to contribute more.

Thanks,

Can I interpret the post as follows: you do not have PF coverage at present. If so, let me say that you cannot 'plan to introduce' PF from a certain future date, i.e., April 2024. It will be introduced automatically, per se, from the date on which the number of employees in your establishment becomes 20. The rest is okay. You can restrict your contribution at Rs 1800, and the employees can either contribute on a maximum salary of Rs 15000 or opt for contribution on any higher salary.

If you are already covered (my second interpretation of the post) but you give coverage only to those whose salary (PF qualifying salary) is Rs 15000 or less, but would like to give coverage to all employees irrespective of their salary, then it is fine. You can start contributing PF to all the employees from a future date, say, April 2024. In such a case, you can take the opinion of employees and decide who all will be contributing on actual salary and who all shall continue to contribute on 15000 only. That is fine. You can have two sets of employees, those contributing on Rs 15000 only and those contributing on higher than Rs 15000.