See, I mean... We all know that we can put Rs. 6,500/- as the ceiling limit for PF. Even in our company, we do not pay PF for over Rs. 6,500/- basic i.e. all those people who have a basic salary of Rs. 6,500 or more get a fixed PF of Rs. 780/- per month. So, let's say person A gets Rs. 20,000 basic. His PF contribution is Rs. 780/- per month as we have a ceiling. Therefore, if his basic is reduced to Rs. 12,000 per month, his PF remains Rs. 780/- as his basic is still above Rs. 6,500/-. Now, what I mean to ask is whether such cases, which are not affected by decreasing the basic as far as PF contribution is concerned, can be restructured without making them resign for one month. Hope I am clear.
From India, New Delhi
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9From India, New Delhi
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Dear Rolly,
You are in big confusion. Your knowledge is wrong that if an employee has 6500/- or more basic, then his PF will be 780 fixed.
See Rolly, first don't say that 24k or 12k monthly is the basic of any particular employee. These are gross salaries, not basic. Now, gross salary is divided into break-ups like basic + HRA + special allowances + conveyance + medical, etc. (depends on the company's norms).
Now, you can decide in your company the % of basic and % of HRA. For example, suppose the gross salary is 12,000 (12k) of any employee, now you can decide in your company the % of basic (like basic will be 60% of gross, HRA will be 30% of gross, and special allowances will be the rest 10% of gross).
Now, the salary breakup of gross-12,000 will be:
Basic - 7200 (60% of gross)
HRA - 3600 (30% of gross)
Special Allowances - 1200 (10% of gross)
Now, come to PF, PF is never fixed. It is always 12% of basic (in this case, PF will be 864) and employer PF will also be 864 (it is also 12% of basic).
Now the salary will be in hand:
12,000 - 864 - 864 = 10,272 (now employer PF is deducted from the employee salary)
There is no such type of word as the ceiling limit of PF (like 780, as you said), but according to the law, again I will say, if the employee has 6500/- or less basic, then PF is mandatory, and if the basic is more than 6500/-, it's not mandatory but PF will be deducted always 12% of basic... there is no ceiling limit.
Now, if the employee's salary is 24k, then the basic will be 14400 (according to my example, 60% of gross), then PF will be 1728 (12% of basic), but if we make 12k basic, then respectively PF will be changed.
I hope I have made it clear enough. Still have queries, feel free to ask.
Deepika
From India, New Delhi
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You are in big confusion. Your knowledge is wrong that if an employee has 6500/- or more basic, then his PF will be 780 fixed.
See Rolly, first don't say that 24k or 12k monthly is the basic of any particular employee. These are gross salaries, not basic. Now, gross salary is divided into break-ups like basic + HRA + special allowances + conveyance + medical, etc. (depends on the company's norms).
Now, you can decide in your company the % of basic and % of HRA. For example, suppose the gross salary is 12,000 (12k) of any employee, now you can decide in your company the % of basic (like basic will be 60% of gross, HRA will be 30% of gross, and special allowances will be the rest 10% of gross).
Now, the salary breakup of gross-12,000 will be:
Basic - 7200 (60% of gross)
HRA - 3600 (30% of gross)
Special Allowances - 1200 (10% of gross)
Now, come to PF, PF is never fixed. It is always 12% of basic (in this case, PF will be 864) and employer PF will also be 864 (it is also 12% of basic).
Now the salary will be in hand:
12,000 - 864 - 864 = 10,272 (now employer PF is deducted from the employee salary)
There is no such type of word as the ceiling limit of PF (like 780, as you said), but according to the law, again I will say, if the employee has 6500/- or less basic, then PF is mandatory, and if the basic is more than 6500/-, it's not mandatory but PF will be deducted always 12% of basic... there is no ceiling limit.
Now, if the employee's salary is 24k, then the basic will be 14400 (according to my example, 60% of gross), then PF will be 1728 (12% of basic), but if we make 12k basic, then respectively PF will be changed.
I hope I have made it clear enough. Still have queries, feel free to ask.
Deepika
From India, New Delhi
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Dear Rolly,
Once the basic salary of an employee is decided, it cannot be reduced because all other benefits depend on the basic salary. Other allowances can be changed, but the basic salary cannot be reduced.
If the management talks to the staff/workers and justifies the decision, then it can be implemented; otherwise, you will face a lot of problems like dissatisfaction among the staff/workers, etc.
Regards,
Ajay Sharma
From India, Jaipur
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Once the basic salary of an employee is decided, it cannot be reduced because all other benefits depend on the basic salary. Other allowances can be changed, but the basic salary cannot be reduced.
If the management talks to the staff/workers and justifies the decision, then it can be implemented; otherwise, you will face a lot of problems like dissatisfaction among the staff/workers, etc.
Regards,
Ajay Sharma
From India, Jaipur
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Hi Deepika,
Well, I guess we need to recheck it. I am quite certain that an employer can contribute PF on a 6500 basic even if the basic salary is more than 6500 (say 10k). According to PF rules, it is mandatory to give PF till 6500 basic. After that, the employee has an option to give PF on 6500 or on the actual basic @ 12% or not give it at all. It is totally the employer's prerogative. Still, I will recheck, and please, if possible, do recheck it at your end as well. Many companies give PF on a 6500 basic only, though the actual basic may be more than 6500.
Rolly
From India, New Delhi
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Well, I guess we need to recheck it. I am quite certain that an employer can contribute PF on a 6500 basic even if the basic salary is more than 6500 (say 10k). According to PF rules, it is mandatory to give PF till 6500 basic. After that, the employee has an option to give PF on 6500 or on the actual basic @ 12% or not give it at all. It is totally the employer's prerogative. Still, I will recheck, and please, if possible, do recheck it at your end as well. Many companies give PF on a 6500 basic only, though the actual basic may be more than 6500.
Rolly
From India, New Delhi
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Hello Ajay and Deepika,
Thank you for your reply. Let me restructure my query - just tell me one thing: if you are clear about it, if a person is out of PF and ESI because his salary is higher, can we restructure his bifurcation? For example:
Present slabs = 14K basic + 2K HRA
Proposed slabs = 12K basic + 2K HRA + 2K special allowance.
Will this attract any legal implications? Please note that the person is exempt from PF and ESI.
Rolly
From India, New Delhi
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Thank you for your reply. Let me restructure my query - just tell me one thing: if you are clear about it, if a person is out of PF and ESI because his salary is higher, can we restructure his bifurcation? For example:
Present slabs = 14K basic + 2K HRA
Proposed slabs = 12K basic + 2K HRA + 2K special allowance.
Will this attract any legal implications? Please note that the person is exempt from PF and ESI.
Rolly
From India, New Delhi
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Sorry for replying late, but the basic salary cannot be reduced according to the EPF Act; it is considered an offense. However, you can always increase it because all the other components are based on the basic salary. As someone mentioned, the best option is to adjust the special allowance.
Thanks,
Vasavi
From India, Hyderabad
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Thanks,
Vasavi
From India, Hyderabad
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Hello Rolly,
Now I understand your problem. Let me clarify... If once PF is applicable in one's salary, during the tenure of the employee, PF must continue. But if the employee is out of PF and ESI, then the basic can be reduced to whatever you want, but it should be more than 6500/-. No legal obligation will attract this thing.
Deepika
From India, New Delhi
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Now I understand your problem. Let me clarify... If once PF is applicable in one's salary, during the tenure of the employee, PF must continue. But if the employee is out of PF and ESI, then the basic can be reduced to whatever you want, but it should be more than 6500/-. No legal obligation will attract this thing.
Deepika
From India, New Delhi
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Hello Rolly,
Now I understand your problem. Let me clarify. If PF is applicable in one's salary during the tenure of an employee, PF must continue. However, if the employee is out of PF and ESI, then the basic can be reduced as desired, but it should be more than 6500/-. There will be no legal obligation associated with this change.
Deepika
From India, New Delhi
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Now I understand your problem. Let me clarify. If PF is applicable in one's salary during the tenure of an employee, PF must continue. However, if the employee is out of PF and ESI, then the basic can be reduced as desired, but it should be more than 6500/-. There will be no legal obligation associated with this change.
Deepika
From India, New Delhi
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Hey Deepika, one thing more...
As you said, we can reduce basic if he is out of PF and ESI. However, reducing basic also affects his gratuity amount, and gratuity is a statutory obligation directly dependent on basic. Are you sure it is workable?
Another thing - If an employee is covered under PF when he joins, and after subsequent increments, suppose his basic exceeds 6500/-. Can his PF contribution be made at 6500/- basic with mutual consent, or does he have to necessarily contribute @ 12% of the actual basic?
And yes, thanks for your reply.
Rolly
From India, New Delhi
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As you said, we can reduce basic if he is out of PF and ESI. However, reducing basic also affects his gratuity amount, and gratuity is a statutory obligation directly dependent on basic. Are you sure it is workable?
Another thing - If an employee is covered under PF when he joins, and after subsequent increments, suppose his basic exceeds 6500/-. Can his PF contribution be made at 6500/- basic with mutual consent, or does he have to necessarily contribute @ 12% of the actual basic?
And yes, thanks for your reply.
Rolly
From India, New Delhi
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Hi,
Basic salary is the guiding value of an individual's job position in any organization, particularly in organizations with different pay scales. The basic salary will determine the provident fund, gratuity, and any allowances you may claim, as they all relate to the basic salary. Therefore, earned basic salary should not be given up for any reason. If you want anything extra, you should claim it separately.
Peter
LIC
From India, Bangalore
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Basic salary is the guiding value of an individual's job position in any organization, particularly in organizations with different pay scales. The basic salary will determine the provident fund, gratuity, and any allowances you may claim, as they all relate to the basic salary. Therefore, earned basic salary should not be given up for any reason. If you want anything extra, you should claim it separately.
Peter
LIC
From India, Bangalore
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