Expert Opinion Needed: PF Contribution for Employee with ₹40,000 CTC (Voluntary PF under Para 26(6))

Dear HR and Labour-Law Experts,

I need your professional advice on a specific case related to EPF contribution for employees drawing wages above ₹15,000 and covered voluntarily under Para 26(6) of the EPF Scheme, 1952.

Case Background:
We appointed an employee with a fixed CTC of ₹40,000 per month, which was also her in-hand salary (no deductions initially).
Later, at her own request, we opened her PF account voluntarily even though her basic pay was above the statutory ceiling of ₹15,000.

Before initiating the contribution, we clearly informed her that both employee (12%) and employer (12%) contributions would be adjusted within her existing salary, resulting in a revised in-hand salary of ₹36,400.
She agreed at that time and PF contributions were deposited accordingly.

Now, she is objecting and claims that only her 12% contribution (₹1,800) should be deducted, and the employer’s 12% share should be borne by the company separately, meaning her take-home should be ₹38,200 instead of ₹36,400.

My Understanding:

Since the employee’s pay was above ₹15,000, PF coverage was voluntary under Para 26(6), not mandatory.

The terms of contribution in voluntary cases are mutually decided between the employer and the employee.

Therefore, the company is not legally bound to pay the employer’s 12% over and above the agreed salary unless it was expressly committed in writing.

Queries:

In voluntary PF cases under Para 26(6), is the employer legally liable to pay their 12% contribution separately, even if the CTC/salary was mutually agreed to include both parts?

Is there any High Court / Supreme Court judgment or EPFO circular that explicitly clarifies this situation?

What is the most compliant way to document such mutual understanding (for example, through Form 11 declaration or a written consent note)?

Any expert insights, legal citations, or best-practice suggestions would be deeply appreciated.

Warm regards,
Deepanshu Bhatnagar

Based on your description, it seems that the mutual agreement between the employer and the employee was to adjust both the employer's and the employee's PF contribution within her existing salary. It is important to note that in voluntary PF cases under Para 26(6), the terms of contribution are indeed mutually decided between the employer and the employee.

In this specific case, if the terms were clearly communicated and there was no written agreement that the employer would bear the 12% contribution separately, the employer is not legally bound to pay the 12% over and above the agreed salary.

As for any legal precedents, I am not aware of any High Court or Supreme Court judgment or EPFO circular that explicitly addresses this situation. However, it is always a good idea to consult with a legal expert or labor law consultant to ensure compliance and mitigate any potential risks.

To avoid such situations in the future, it is advisable to document such mutual understanding in a more formal and legal manner. For example, through a Form 11 declaration or a written consent note, clearly stating the terms of the PF contribution. This should be signed and acknowledged by both parties.

It is also a good practice to educate employees about the implications of their CTC structure, including the impact of their PF contributions on their in-hand salary.

Remember, clear communication and proper documentation can help prevent misunderstandings and potential disputes in the future.

Hi Deepanshu

If at all the employee EPF wages is above Rs. 15,000/- & of he/she is first time to EPF then the same person is treated as excluded employee hence she is not mandated for EPF contribution.

In such cases if EPF is contributed then even company need to contribute equal amount ie Rs. 1800/-, this is not voluntary contribution. Voluntary contribution means exceeding the EPF ceiling limit if employee want to contribute then thats voluntary contribution

There is no CTC structure in current employment Acts, there are only Basic, Gross & Net wages and the CTC is designed only by the company

As you planned to deducted both employee & employer EPF contributions then certainly her gross wages would reduce and is there any written agreement for reduction of the same?

You have said that the offer of employment made to the employee was for a CTC of Rs. 40,000/-. Presuming that you have not stated that she would be paid Rs. 40,000 - employee's PF contribution, the stand taken is legal & proper. CTC is a notional term and includes all expenses incurred, directly or indirectly which can be related to the employee. Since the CTC remains Rs. 40,000/- there is no violation.
If tomorrow you introduce a medical insurance, the premium can be deducted from this amount.
The law only states that the employer's contribution cannot be deducted from the employee's salary. Here the employee's salary is fixed as Rs. 36,400 & together with both PF contributions, the CTC is Rs. 40,000/- .
There is no specific case law on the point of CTC vis a vis PF contribution