We are following the limit of ₹15,000/- of BP+DA for PF contribution, commonly applicable to all eligible employees in our company. Now, one new joiner who was contributing in his last/previous company 12% on the Basic salary (BP+DA) without any limit, i.e., on ₹50,000/- BP + DA = ₹6,000/- PF equal from the Employee as well as from the Employer share, i.e., ₹12,000/-.
Legal Complications of PF Contribution Limit
Now the question is, what will be the legal complications from the PF office on us (Employer) if we maintain our limit of a maximum ₹15,000/- and contribute 12% on the Employee part + 12% on the Employer part, as a part of common policy for all employees in the company. This results in that: in his (new joiner's) last company PF contribution was ₹6,000 + ₹6,000 = ₹12,000/- but now it reduced to ₹1,800/- + ₹1,800 = ₹3,600/-.
Please clarify if it causes any risk of challenge from the PF office due to a lowering in contribution amount from ₹12,000/- to ₹3,600/-. Is it mandatory for us to maintain PF contribution according to his previous company's policy of contributing PF on the total Basic salary (BP+DA) without any limit?
Humble request for an early reply from Labour law Professionals for the common benefit of all...
Regards,
Vikas
From India, Mumbai
Acknowledge(0)
Amend(0)
Legal Complications of PF Contribution Limit
Now the question is, what will be the legal complications from the PF office on us (Employer) if we maintain our limit of a maximum ₹15,000/- and contribute 12% on the Employee part + 12% on the Employer part, as a part of common policy for all employees in the company. This results in that: in his (new joiner's) last company PF contribution was ₹6,000 + ₹6,000 = ₹12,000/- but now it reduced to ₹1,800/- + ₹1,800 = ₹3,600/-.
Please clarify if it causes any risk of challenge from the PF office due to a lowering in contribution amount from ₹12,000/- to ₹3,600/-. Is it mandatory for us to maintain PF contribution according to his previous company's policy of contributing PF on the total Basic salary (BP+DA) without any limit?
Humble request for an early reply from Labour law Professionals for the common benefit of all...
Regards,
Vikas
From India, Mumbai
Acknowledge(0)Amend(0)
Understanding PF Contribution Limits and Legal Implications
Lowering the PF qualifying salary or Section 12 of the EPF & Miscellaneous Provisions Act does not apply here because there is a change in member ID. It is immaterial how much his contribution was in his previous company. What needs to be taken care of is whether you cover him or not. If you exclude him on the grounds that his salary at the time of joining your organization is more than Rs 15,000, then it becomes a legal issue. You are obligated to continue his PF, but you are not liable to contribute in the same manner as his previous employer. Moreover, the Employees Provident Fund Organization cannot demand a contribution higher than Rs 15,000. If they demand that the employee has been contributing on a salary of, say, Rs 50,000, and therefore you cannot reduce it, you may simply state:
• Since he is a PF member who has not withdrawn the accumulations before joining our company, we have provided him coverage.
• As per our company policy, the contribution is limited to 12% on a maximum qualifying salary of Rs 15,000, and accordingly, we contribute to his PF. We are not obligated to pay it on a higher salary.
• In Maratwada Gramin Bank Karmachari Sanghatan and another vs. Management of Maratwada Gramin Bank and others (SC 2011 LLR 1130), the Supreme Court ruled that EPF Organization's right to demand contribution is restricted to Rs 6,500 (at the time of the ruling, the salary ceiling was Rs 6,500, now it has been increased to Rs 15,000), and therefore, if the Bank had changed the practice of contributing PF on wages higher than Rs 6,500 (now Rs 15,000) and restricted it to Rs 6,500 (now Rs 15,000), it will not attract Section 12 since the EPFO has no right to demand contribution on any amount higher than Rs 6,500 (now Rs 15,000). This means it is purely the employer's decision, and the EPFO cannot interfere in it.
Regards,
Madhu.T.K
From India, Kannur
Acknowledge(1)Amend(0)
4526Lowering the PF qualifying salary or Section 12 of the EPF & Miscellaneous Provisions Act does not apply here because there is a change in member ID. It is immaterial how much his contribution was in his previous company. What needs to be taken care of is whether you cover him or not. If you exclude him on the grounds that his salary at the time of joining your organization is more than Rs 15,000, then it becomes a legal issue. You are obligated to continue his PF, but you are not liable to contribute in the same manner as his previous employer. Moreover, the Employees Provident Fund Organization cannot demand a contribution higher than Rs 15,000. If they demand that the employee has been contributing on a salary of, say, Rs 50,000, and therefore you cannot reduce it, you may simply state:
• Since he is a PF member who has not withdrawn the accumulations before joining our company, we have provided him coverage.
• As per our company policy, the contribution is limited to 12% on a maximum qualifying salary of Rs 15,000, and accordingly, we contribute to his PF. We are not obligated to pay it on a higher salary.
• In Maratwada Gramin Bank Karmachari Sanghatan and another vs. Management of Maratwada Gramin Bank and others (SC 2011 LLR 1130), the Supreme Court ruled that EPF Organization's right to demand contribution is restricted to Rs 6,500 (at the time of the ruling, the salary ceiling was Rs 6,500, now it has been increased to Rs 15,000), and therefore, if the Bank had changed the practice of contributing PF on wages higher than Rs 6,500 (now Rs 15,000) and restricted it to Rs 6,500 (now Rs 15,000), it will not attract Section 12 since the EPFO has no right to demand contribution on any amount higher than Rs 6,500 (now Rs 15,000). This means it is purely the employer's decision, and the EPFO cannot interfere in it.
Regards,
Madhu.T.K
From India, Kannur
Acknowledge(1)Amend(0)
Dear Vikas, The statutory rate of contribution is 12% for PF on Basic up to Rs 15,000 only. Beyond Rs 15,000, the contribution (12% of Rs 15,000) is called Voluntary Contribution. Many companies limit it to Rs 15,000 and do not make voluntary contributions as it is an added burden on their pockets. If you are paying just Rs 3,600 for both contributions, there is no need to worry. You can breathe a sigh of relief and relax.
You will need to ensure that the employee understands the company's policy of not making voluntary contributions.
Regards
From India, Mumbai
Acknowledge(0)Amend(0)
You will need to ensure that the employee understands the company's policy of not making voluntary contributions.
Regards
From India, Mumbai
Acknowledge(0)Amend(0)CiteHR is an AI-augmented HR knowledge and collaboration platform, enabling HR professionals to solve real-world challenges, validate decisions, and stay ahead through collective intelligence and machine-enhanced guidance. Join Our Platform.
Legal Clarification on Termination for Criminal Case & PF Contribution Reduction.pdf
Employee Benefits.doc