Joining Late in the Month: How Should EPF Contributions Be Handled for New Employees?

Hi, If an employee's date of joining is considered to be in the last week of the month (e.g., 24th – Monday), does the company need to open a new EPF account and pay/deposit the EPF for that month (for 5 working days) in the same month on a pro rata basis? Or can it be deposited into the EPF account in the next month?

My questions are:

1. Does an EPF account, if UAN exists, need to be opened in the same month of joining?

2. For the 5 days that he has worked with us that month, should the EPF be credited on a pro rata basis?

3. If pro rata, can it be credited in the next month along with the PF of the next month?

Hi, If you are processing salary for 5 days in the same month, then the equivalent PF for 5 days should be processed and deposited. As the UAN already exists with the current employer, you only need to allot the PF number. Alternatively, if the 5 days' salary is not processed for that month, then when processing the salary for the subsequent month, you need to add the 5 days' salary along with arrears PF for 5 days. Wherever possible, process for the particular month itself. If you have any salary cutoff date issue, then do not entertain new joiners during month-end, say after the 21st.

The term "prorata basis" in the context of the Employees' Provident Fund (EPF) refers to the calculation of contributions based on the proportion of the period an employee has worked during a particular month or year. This is particularly relevant when an employee joins or leaves the organization partway through a month or when their salary changes mid-month.

How EPF is Calculated on a Prorata Basis

Understanding EPF Contributions:

Both the employer and the employee contribute a certain percentage of the employee's salary (basic wages plus dearness allowance) to the EPF. The current standard contribution rate is 12% of the employee's salary from both the employer and the employee.

Prorata Calculation:

When an employee works only part of a month, the EPF contributions are calculated based on the actual number of days worked.

Example Calculation

Scenario:

An employee joins the company on the 10th of the month, with a basic salary of ₹30,000.

Steps:

Determine the Salary for the Period Worked:

Calculate the daily wage: ₹30,000 / 30 days = ₹1,000 per day.
Calculate the salary for the days worked: 21 days (assuming 31 days in the month) x ₹1,000 = ₹21,000.

Calculate EPF Contribution:

Employee's contribution: 12% of ₹21,000 = ₹2,520.
Employer's contribution: 12% of ₹21,000 = ₹2,520.

Detailed Steps

Calculate the Daily Salary:

Divide the monthly salary by the number of days in the month to get the daily salary.
Example: ₹30,000 / 30 days = ₹1,000 per day.

Determine the Salary for Actual Days Worked:

Multiply the daily salary by the number of days worked.
Example: ₹1,000 per day x 21 days = ₹21,000.

Compute the EPF Contribution for the Salary Earned:

Calculate the EPF contributions (12% each for employee and employer) based on the prorated salary.
Example: 12% of ₹21,000 = ₹2,520 (for both employee and employer).

Summary

When calculating EPF on a prorata basis, follow these steps:

- Determine the daily wage by dividing the monthly salary by the number of days in the month.
- Calculate the salary for the actual days worked.
- Apply the standard EPF contribution rates to the prorated salary.

This method ensures that both the employee and the employer contributions to the EPF are fair and accurately reflect the time the employee has worked within a given period.