Dear Peers,
I need your valuable suggestions. For instance, an employee's gross salary is 50,000/- and EPF wage is restricted to 15,000/-.
He has 5 days LOP in a month. How would you calculate his EPF? Would you reduce 5 days from his restricted EPF wage, which is 15,000, and calculate EPF from the reduced EPF wage? Or would you reduce 5 days from the entire gross wage and derive the EPF wage to contribute to EPF?
Please suggest.
From India, Gandhinagar
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I need your valuable suggestions. For instance, an employee's gross salary is 50,000/- and EPF wage is restricted to 15,000/-.
He has 5 days LOP in a month. How would you calculate his EPF? Would you reduce 5 days from his restricted EPF wage, which is 15,000, and calculate EPF from the reduced EPF wage? Or would you reduce 5 days from the entire gross wage and derive the EPF wage to contribute to EPF?
Please suggest.
From India, Gandhinagar
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As mentioned in the post, PF gross is probably less than 50,000/- of monthly gross. In case of LOP, proportionately all components of monthly gross salary are reduced. Even after the reduction of monthly gross, if the PF gross is above 15,000/-, then PF contribution will be on 15,000/-; otherwise, it will be on the reduced (less than 15,000/-) PF gross.
From India, New Delhi
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367From India, New Delhi
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If the PF qualifying wages are Rs. 15,000, you should deduct the loss of pay from that amount only. That means PF shall be contributed on Rs. 12,500 only. If you still contribute based on Rs. 15,000, then the paydays will not match.
From India, Kannur
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From India, Kannur
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There is no relationship between PF contribution and matching of paydays. Paydays are directly related to Notional wages vs. Actual wages paid (less) due to LOP.
Let us consider the calculation as follows: Monthly Gross 50,000/- and PF contribution deposited on 15,000/- cap. If we break up the monthly gross as PF gross 30,000/- per month and other allowances 20,000/- per month at the earning side and 1800/- PF contribution, PTAX as applicable, ITAX if any and any other deduction due to loan/advance at the deduction side, then the net wages will be total earnings minus total deductions.
The employee has 5 days LOP. Therefore, PF gross will be 25,000/- and other allowances will be 16,667/- on the earning side and 1800/- will be PF contribution (restricted up to 15,000/-), PTAX as applicable, ITAX if any, and any other deduction due to loan/advance at the deduction side.
There may be another condition where PF gross is 15,000/- and other allowances are 35,000/-. Then after LOP, PF gross will be 12,500/- and other allowances will be 29,167/-. This will not be a proper/scientific Pay Structure and also violate the Apex Court Verdict Feb 2019.
S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions +91 98310 81531
USD HR Solutions – To Strive towards excellence with effort and integrity
From India, New Delhi
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Let us consider the calculation as follows: Monthly Gross 50,000/- and PF contribution deposited on 15,000/- cap. If we break up the monthly gross as PF gross 30,000/- per month and other allowances 20,000/- per month at the earning side and 1800/- PF contribution, PTAX as applicable, ITAX if any and any other deduction due to loan/advance at the deduction side, then the net wages will be total earnings minus total deductions.
The employee has 5 days LOP. Therefore, PF gross will be 25,000/- and other allowances will be 16,667/- on the earning side and 1800/- will be PF contribution (restricted up to 15,000/-), PTAX as applicable, ITAX if any, and any other deduction due to loan/advance at the deduction side.
There may be another condition where PF gross is 15,000/- and other allowances are 35,000/-. Then after LOP, PF gross will be 12,500/- and other allowances will be 29,167/-. This will not be a proper/scientific Pay Structure and also violate the Apex Court Verdict Feb 2019.
S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions +91 98310 81531
From India, New Delhi
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To me, Mr. Bandyopathyay's view seems to be appropriate. Contributions from both the employer and the employee are based on the quantum of gross monthly wages only, and as such, the number of days of attendance has no relevance.
From India, Salem
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From India, Salem
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But if you take it on Rs 15,000 for those who have LOPs, will it be the right approach? Because the amount of contribution of an employee who has worked for 30/31 days will be the same amount as that of an employee who has taken a few days' leave without pay. Additionally, in the HRMs system, we may have a field like PF contributing salary, which may be Rs 15,000. When you input days present as 25 or 26, the system will proportionately reduce the PF contributing salary.
In PF records, non-contributing periods are very relevant for deciding the service and pension amounts; the number of days will have relevance, I believe.
From India, Kannur
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In PF records, non-contributing periods are very relevant for deciding the service and pension amounts; the number of days will have relevance, I believe.
From India, Kannur
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Contribution to PF depends on actual PF gross earnings, not on the number of days worked. Therefore, the distinction between employees who have worked for 30/31 days and those who have worked less than 30/31 days is irrelevant. According to the PF & Misc. Act, PF contribution is based on earnings, not on the number of days present.
Moving on to HRMS software, the usual logic for deducting PF contribution in organizations limiting it to 15,000/- is to "deduct PF contribution on PF gross amount subject to a maximum of 15,000/- or less," rather than basing it on the number of days present.
In this scenario, there is no non-contribution period, so it does not impact the determination of service and pension amounts. We process payroll for both MNCs and Indian organizations every month through HRMS software, and we also engage with EPFO periodically, with their agreement on our approach.
S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions +91 98310 81531 skb@usdhrs.in USD HR Solutions – To strive towards excellence with effort and integrity
From India, New Delhi
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Moving on to HRMS software, the usual logic for deducting PF contribution in organizations limiting it to 15,000/- is to "deduct PF contribution on PF gross amount subject to a maximum of 15,000/- or less," rather than basing it on the number of days present.
In this scenario, there is no non-contribution period, so it does not impact the determination of service and pension amounts. We process payroll for both MNCs and Indian organizations every month through HRMS software, and we also engage with EPFO periodically, with their agreement on our approach.
S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions +91 98310 81531 skb@usdhrs.in USD HR Solutions – To strive towards excellence with effort and integrity
From India, New Delhi
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Suppose an employee whose salary is Rs. 15,000 works for 31 days, and his contribution to PF is Rs. 1800. His Pensionable service for that month is also 31 days. Another employee whose salary is Rs. 30,000 but works for 26 days in that month. In your calculation, his PF qualifying salary would be Rs. 15,000, and his pensionable service will be 31 days.
If you apply the same structure for bonus calculation: In your style of calculation, the employee whose Bonus qualifying salary (due to any reason like the company policy permits such payment based on an amount up to Rs. 15,000 or the minimum wages fixed is Rs. 150,000 and hence the bonus should be calculated on Rs. 15,000) exceeds Rs. 15,000 will get full bonus even if he takes a few days LOP. But the employee whose Bonus qualifying salary is Rs. 15,000 and who does not take any leave will get only the same bonus as the worker who takes LOP. Is this fair? The Payment of Bonus Act, anyway, permits a proportionate deduction. I have applied the same logic in PF also. Therefore, I strongly support that LOP should be proportionately deducted from the PF qualifying salary, and the same LOP should reflect as a Non-Contributing Period in the Pensionable Service records.
From India, Kannur
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If you apply the same structure for bonus calculation: In your style of calculation, the employee whose Bonus qualifying salary (due to any reason like the company policy permits such payment based on an amount up to Rs. 15,000 or the minimum wages fixed is Rs. 150,000 and hence the bonus should be calculated on Rs. 15,000) exceeds Rs. 15,000 will get full bonus even if he takes a few days LOP. But the employee whose Bonus qualifying salary is Rs. 15,000 and who does not take any leave will get only the same bonus as the worker who takes LOP. Is this fair? The Payment of Bonus Act, anyway, permits a proportionate deduction. I have applied the same logic in PF also. Therefore, I strongly support that LOP should be proportionately deducted from the PF qualifying salary, and the same LOP should reflect as a Non-Contributing Period in the Pensionable Service records.
From India, Kannur
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Pension calculation under EPS is Average PF gross * Pensionable service/70. Therefore, the factors which are important are Pensionable Service and Average PF gross. In a particular month for 5 days LOP has no effect on the calculation of Pensionable service.
In the case of Bonus calculation, there are a few conditions. The percentage of bonus to be determined on the basis of allocable surplus, set on and set off. Individual's eligibility, calculation base - 7000/- or the minimum wages and finally individual calculation considering LOP.
There is no mathematical logic or relation between the two calculations - PF & Bonus.
If we try to correlate between LOP deduction under PB Act vs PF Act, it is like comparing apples and guavas.
The Payment of Bonus Act has allowed proportionate deduction, as you have also mentioned, but it is not mentioned anywhere in PF & Misc. Act. In case of Bonus calculation, once the basis of calculation is finalized (7000/- or minimum wages whichever is higher), then after calculating bonus as per the PB Act - say as you have mentioned in your post 15000/- minimum wages and let us consider 10% bonus - the value will be 18,000/-. The employee who had not any LOP will be eligible for 18,000/-. But the employee who had LOP would get less bonus proportionately as per the PB Act.
In the case of PF & Misc. Act, the contribution depends on the actual earnings of PF Gross considering LOP. If the organization intends to contribute on a 15,000/- cap as per the act, in that case, even after LOP if the PF Gross is 15,000/- or more - it should be deducted on 15,000/- instead of bringing down 15,000/- as per LOP to contribute PF on less than 15,000/-. In payroll, it will reflect that the PF gross is more than 15,000/- but the contribution has been made on below 15,000/- amount, and that will not be acceptable to the PF authority.
S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions +91 98310 81531 USD HR Solutions – To Strive towards excellence with effort and integrity
From India, New Delhi
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In the case of Bonus calculation, there are a few conditions. The percentage of bonus to be determined on the basis of allocable surplus, set on and set off. Individual's eligibility, calculation base - 7000/- or the minimum wages and finally individual calculation considering LOP.
There is no mathematical logic or relation between the two calculations - PF & Bonus.
If we try to correlate between LOP deduction under PB Act vs PF Act, it is like comparing apples and guavas.
The Payment of Bonus Act has allowed proportionate deduction, as you have also mentioned, but it is not mentioned anywhere in PF & Misc. Act. In case of Bonus calculation, once the basis of calculation is finalized (7000/- or minimum wages whichever is higher), then after calculating bonus as per the PB Act - say as you have mentioned in your post 15000/- minimum wages and let us consider 10% bonus - the value will be 18,000/-. The employee who had not any LOP will be eligible for 18,000/-. But the employee who had LOP would get less bonus proportionately as per the PB Act.
In the case of PF & Misc. Act, the contribution depends on the actual earnings of PF Gross considering LOP. If the organization intends to contribute on a 15,000/- cap as per the act, in that case, even after LOP if the PF Gross is 15,000/- or more - it should be deducted on 15,000/- instead of bringing down 15,000/- as per LOP to contribute PF on less than 15,000/-. In payroll, it will reflect that the PF gross is more than 15,000/- but the contribution has been made on below 15,000/- amount, and that will not be acceptable to the PF authority.
S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions +91 98310 81531
From India, New Delhi
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Pension calculation under EPS is Average PF gross * Pensionable service/70. Therefore, factors which are important are Pensionable Service and Average PF gross. In a particular month for 5 days LOP has no effect on the calculation of Pensionable service.
True. But each non-contributing day will reduce the pensionable service. It is not the five days, but the accumulations of many such five days that will decide the service.
In case of Bonus calculation, there are few conditions. % of bonus to be determined on the basis of allocable surplus, set on and set off. Individual's eligibility, calculation base - 7000/- or the minimum wages and finally individual calculation considering LOP.
While calculating bonus, the proportionate deduction is done from 7000 or the minimum wages, as the case may be, and not on the gross salary of the employee.
There is no mathematical logic/relation between the two calculations - PF & Bonus.
Yes, there is logic in it because in both these calculations, the amount qualifying is not the total salary but a different amount.
In both the Acts, wherever you have 'wages', you should put 'qualifying wages'. In Bonus Act, it may be Rs 7000, or the statutory minimum wages, say, Rs 15000. The employee's salary may be Rs 20000 or even more than that (without considering 21000 ceiling). If the calculation is based on actual earnings, there would not be any confusion; we would have done it on the actual earned salary.
In the case of PF also, you are putting Rs 15000 in the place of wages. That means, the employee's salary is only Rs 15000 (He may be getting Rs 500000 but in the PF records his salary is only Rs 15000) and if he takes 5 days LOP, his salary would not be the same Rs 15000.
Take another example, his basic salary is Rs 15000. He is paid an HRA of Rs 10000. He gets Rs 5000 by way of Conveyance allowance. He gets Rs 20000 as Special Allowance. That means his total gross salary is Rs 50000. If he takes 5 days' LOP will you pay Rs 41667. That is 50000 minus 8333 being 5 days pay calculated on the basis of 50000 divided by 30. The salary of Rs 41667 will be bifurcated as: Basic Salary: 12500 HRA: 8333 Conveyance: 4167 Spl. Allowance: 16667 Total: 41667
On which amount will you deduct and contribute PF? Obviously, on Rs 12500.
In this case, the earned salary is only Rs 12500. If the PF is being contributed on the whole salary, the earned salary of 41667 will qualify for PF also. Therefore, the PF authorities cannot refuse to accept it under any ground. For them, salary means Rs 15000 and the earned salary means the salary earned by working for 25 days only and that is Rs 12500.
From India, Kannur
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True. But each non-contributing day will reduce the pensionable service. It is not the five days, but the accumulations of many such five days that will decide the service.
In case of Bonus calculation, there are few conditions. % of bonus to be determined on the basis of allocable surplus, set on and set off. Individual's eligibility, calculation base - 7000/- or the minimum wages and finally individual calculation considering LOP.
While calculating bonus, the proportionate deduction is done from 7000 or the minimum wages, as the case may be, and not on the gross salary of the employee.
There is no mathematical logic/relation between the two calculations - PF & Bonus.
Yes, there is logic in it because in both these calculations, the amount qualifying is not the total salary but a different amount.
In both the Acts, wherever you have 'wages', you should put 'qualifying wages'. In Bonus Act, it may be Rs 7000, or the statutory minimum wages, say, Rs 15000. The employee's salary may be Rs 20000 or even more than that (without considering 21000 ceiling). If the calculation is based on actual earnings, there would not be any confusion; we would have done it on the actual earned salary.
In the case of PF also, you are putting Rs 15000 in the place of wages. That means, the employee's salary is only Rs 15000 (He may be getting Rs 500000 but in the PF records his salary is only Rs 15000) and if he takes 5 days LOP, his salary would not be the same Rs 15000.
Take another example, his basic salary is Rs 15000. He is paid an HRA of Rs 10000. He gets Rs 5000 by way of Conveyance allowance. He gets Rs 20000 as Special Allowance. That means his total gross salary is Rs 50000. If he takes 5 days' LOP will you pay Rs 41667. That is 50000 minus 8333 being 5 days pay calculated on the basis of 50000 divided by 30. The salary of Rs 41667 will be bifurcated as: Basic Salary: 12500 HRA: 8333 Conveyance: 4167 Spl. Allowance: 16667 Total: 41667
On which amount will you deduct and contribute PF? Obviously, on Rs 12500.
In this case, the earned salary is only Rs 12500. If the PF is being contributed on the whole salary, the earned salary of 41667 will qualify for PF also. Therefore, the PF authorities cannot refuse to accept it under any ground. For them, salary means Rs 15000 and the earned salary means the salary earned by working for 25 days only and that is Rs 12500.
From India, Kannur
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In your one example, you have shown after adjusting LOP and bifurcating the remuneration - Basic Salary - 12,500, HRA - 8,333, Conveyance - 4,167, Spl. Allowance - 1,667, Total - 41,667. In your many past posts, you have opined to pay PF contribution on monthly gross. As per the Apex court verdict in February 2019 and your example, PF contribution should be on 12,500/-, which is highly contradictory. In the said example, the PF contribution should be on the Monthly gross - HRA. If the organization intends to pay on 15,000/-, it can restrict on that. I have already mentioned the same example in one of my earlier posts.
I am not commenting on your other points as they do not appear to me in the form of logical inputs.
It is better you stay with your belief and let the members decide the right path. If any other learned member is interested in adding something, please do the same.
I will stop at this stage from further commenting regarding this issue.
Thanks, Mr. Madhu T K, for all these interactions.
S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions +91 98310 81531 USD HR Solutions – To Strive towards excellence with effort and integrity
From India, New Delhi
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I am not commenting on your other points as they do not appear to me in the form of logical inputs.
It is better you stay with your belief and let the members decide the right path. If any other learned member is interested in adding something, please do the same.
I will stop at this stage from further commenting regarding this issue.
Thanks, Mr. Madhu T K, for all these interactions.
S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions +91 98310 81531
From India, New Delhi
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Yes, I do agree that PF should be paid on total salary. Still, I say the same only. Along with that, you should also consider the fact that EPFO has no right to demand contribution on a salary above Rs 15,000.
Now coming to the example, when PF is restricted to Rs 15,000, that is the PF qualifying salary. It does not mean that when the employee is on Leave Without Pay, the contribution should be on the same amount of salary, i.e., Rs 15,000 but on earned salary, i.e., Rs 12,500, in the example.
I repeat that in respect of employees whose gross salary is more than Rs 15,000, the same is the PF qualifying salary. There is no mention of how much the gross salary is. When the salary is Rs 15,000, the loss of pay should be proportionately deducted from that amount only. This is because the gross salary does not come into the picture at all. At the same time, if the ceiling is removed, the gross salary should qualify for PF contributions.
I don't find any contradictory statements.
From India, Kannur
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Now coming to the example, when PF is restricted to Rs 15,000, that is the PF qualifying salary. It does not mean that when the employee is on Leave Without Pay, the contribution should be on the same amount of salary, i.e., Rs 15,000 but on earned salary, i.e., Rs 12,500, in the example.
I repeat that in respect of employees whose gross salary is more than Rs 15,000, the same is the PF qualifying salary. There is no mention of how much the gross salary is. When the salary is Rs 15,000, the loss of pay should be proportionately deducted from that amount only. This is because the gross salary does not come into the picture at all. At the same time, if the ceiling is removed, the gross salary should qualify for PF contributions.
I don't find any contradictory statements.
From India, Kannur
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As per my understanding, we pay wages based on attendance; therefore, the PF should be calculated as follows: PF wages/30 * working days. If PF wages are restricted to 15K, then we have to calculate the PF contribution as if his wages are 15K, even if his gross salary is higher.
In the referred case, the employee has 5 days of LOP. Therefore, in the ECR, the NCP (Non-contributing period) days will be 5. These 5 days will not be considered for PF contribution. If the leave days are approved, then PF will be calculated based on the full ceiling limit, and NCP days will be 0. In that case, the full ceiling limit will be considered for PF contribution.
From India, Bhubaneswar
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In the referred case, the employee has 5 days of LOP. Therefore, in the ECR, the NCP (Non-contributing period) days will be 5. These 5 days will not be considered for PF contribution. If the leave days are approved, then PF will be calculated based on the full ceiling limit, and NCP days will be 0. In that case, the full ceiling limit will be considered for PF contribution.
From India, Bhubaneswar
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