Opting Out of Provident Fund: What Are the Pros, Cons, and Steps Involved?

Hi, I know that employees in the middle and higher salary ranges can choose not to take PF and receive their full salary in hand. What are the benefits and drawbacks in this scenario, and what is the procedure?

Thanks,
Arpana

The EPF Act does not mention about 'middle' or 'high' range of salary, but it only says about 'number of employees' and 'amount of salary per month'. As such, establishments employing 20 or more are covered under the Act, and those employees whose salary (basic + DA) at the time of joining does not exceed Rs 6500 are covered. Those whose salary at the time of joining exceeds Rs 6500 can also become members of the PF, but it is not mandatory, which means they can opt out. However, an employee once covered will continue to be covered irrespective of his salary. Therefore, if the company wants to give coverage to all employees, then it should be decided right at the time the PF is enforced; otherwise, it will become mandatory to give coverage in the future. You cannot have two treatments in the same organization like those drawing more salary but with PF and those even though drawing more than the ceiling but without PF.

Regards, Madhu.T.K

Dear Sir,

Please let me know the following:
1. Who are 'excluded employees'?
2. Which clause of the PF Act mentions this?
3. Is it optional for any employee earning a basic salary of more than Rs 6500 per month to be outside of the PF?
4. Please specify the relevant clause in the PF Act.

Kindly treat this as urgent as I have been receiving many queries on the issue and am unable to find any relevant clause in the act.

Regards,
Subhabrata Dasgupta

The term "excluded employee" has been defined in para 2(f) of the Employees' Provident Fund Scheme, 1952. Please note that there is no such definition in the Employees' Provident Fund and Miscellaneous Provisions Act, 1952. As per the scheme, any employee who has made a withdrawal of PF, any employee whose salary at the time of joining exceeds Rs 6500, and any apprentice (engaged under the provisions of the Apprentice Act) are excluded employees.

The provision relating to contribution is given in para 29 of the scheme, and membership is outlined in para 26 of the scheme. It is always desirable to read the rules, schemes, or regulations framed simultaneously with the Act.

Regards,
Madhu.T.K

Dear All,

I have a new joiner who wishes to opt out of the Provident Fund Scheme. All our other staff are enrolled in the scheme. Is it possible to allow her to opt out? Is there any clause that states that an employee can opt out of the PF system? She wants the cash in hand instead of the contribution. How does the salary break-up work? Please note the basic salary is Rs. 10,000.

Thank you and hoping to receive various responses.

Hi,

As the basic DA per month is exceeding the coverage limit, the employee does not need to be covered (as you said all other employees are covered - but there is no mention of their salaries). Once she is not covered, the same should not reflect in the salary breakup either. To be on the safer side, get this in writing from the employee stating that she is not interested in being covered.

-Saravana Rajan

Hello All,

If an employee whose salary is higher than $6,500 has opted for PF on their joining and after 3 to 4 months wants to opt out of PF, is it possible to do so? If yes, what is the procedure? Which forms need to be filled?

If it is not possible in the middle of the financial year, can the employee opt out during the beginning of the new financial year? If yes, what is the procedure? Which forms are required to be filled?

Looking forward to detailed guidance on this.

Thanks,
Khyati