Hello
Presenting a case for your guidance:
An employee whose PF was earlier deducted on Rs 10000 (both sides 12%) is lowered to statutory ceiling of Rs 6500 (i.e both sides to deduct 12% on Rs 6500). The employee has agreed to this but says that his (employees) PF contribution should still be deducted on Rs 10000 & the employer to deduct on Rs 6500. How is this possible since as per my knowledge their cannot be 02 different bases (Rs 6500 & Rs 10000) for calculating EPF, Pension & EDLI.
Please throw some light on this case.
From India, Aurangabad
14Presenting a case for your guidance:
An employee whose PF was earlier deducted on Rs 10000 (both sides 12%) is lowered to statutory ceiling of Rs 6500 (i.e both sides to deduct 12% on Rs 6500). The employee has agreed to this but says that his (employees) PF contribution should still be deducted on Rs 10000 & the employer to deduct on Rs 6500. How is this possible since as per my knowledge their cannot be 02 different bases (Rs 6500 & Rs 10000) for calculating EPF, Pension & EDLI.
Please throw some light on this case.
From India, Aurangabad
Hi
The employee's point of view cant be settled as EPF contribution have to be equal so therefore the base should be equal. Employee cannot deduct 12% on 10k & employer cannot on 6.5k since it is not allowed in the EPF Scheme. Please educate your employee on this aspect.
regards
From India, Mumbai
The employee's point of view cant be settled as EPF contribution have to be equal so therefore the base should be equal. Employee cannot deduct 12% on 10k & employer cannot on 6.5k since it is not allowed in the EPF Scheme. Please educate your employee on this aspect.
regards
From India, Mumbai
There is no illegality in it. The employees can ask the employer to deduct 12% of 10000 and at the same time employer can contribute on 6500. In the case of voluntary contribution also, the same thing happens. Therefore, you can allow it.
Madhu.T.K
From India, Kannur
Madhu.T.K
From India, Kannur
Dear Madhu Sir
Para 29(2) says that the contribution payable by employee under the scheme shall be equal to the contribution payable by the employer. This para cannot be exercised if there are 02 different bases to calculate EPF.
eg. in the given case Employee pays RS 1200 on Rs 10000 whereas employers liability is only Rs 780 on Rs 6500. Now since Rs 541 have to be maintained in EPS account the remaining out of Rs 780 i.e 239 is put in EPF. This Rs 239 (3.67% in EPF) & Rs 541 (8.33% in EPS) should equal to 12% (i.e in this case Rs 1200) of employee contribution which is not the case. Therefore the employees share also has to be deducted on Rs 6500. Yes, if he wants he can raise his VPF upto 100% of Rs 6500 which is allowed anyway.
Hope you would agree on this.
From India, Mumbai
Para 29(2) says that the contribution payable by employee under the scheme shall be equal to the contribution payable by the employer. This para cannot be exercised if there are 02 different bases to calculate EPF.
eg. in the given case Employee pays RS 1200 on Rs 10000 whereas employers liability is only Rs 780 on Rs 6500. Now since Rs 541 have to be maintained in EPS account the remaining out of Rs 780 i.e 239 is put in EPF. This Rs 239 (3.67% in EPF) & Rs 541 (8.33% in EPS) should equal to 12% (i.e in this case Rs 1200) of employee contribution which is not the case. Therefore the employees share also has to be deducted on Rs 6500. Yes, if he wants he can raise his VPF upto 100% of Rs 6500 which is allowed anyway.
Hope you would agree on this.
From India, Mumbai
Sorry, I do not agree with it because the provisio to scheme 29(2) states as follows:
Provided that in respect of any employee to whom the Scheme applies, the contribution payable by him may, if he so desires, be an amount exceeding 12 percent of his basic wages,dearness allowance and retaining allowance (if any) subject to the condition that the employer shall not be under an obligation to pay any contribution over and above his contribution payable under the Act.
That means employee's share need not be equal to employer's share. It is only a mandatory provision that at least equal share share should be contributed by the employee also.
Madhu.T.K
From India, Kannur
Provided that in respect of any employee to whom the Scheme applies, the contribution payable by him may, if he so desires, be an amount exceeding 12 percent of his basic wages,dearness allowance and retaining allowance (if any) subject to the condition that the employer shall not be under an obligation to pay any contribution over and above his contribution payable under the Act.
That means employee's share need not be equal to employer's share. It is only a mandatory provision that at least equal share share should be contributed by the employee also.
Madhu.T.K
From India, Kannur
Dear Sir
I think you are looking at it from Voluntary PF angle wherein I totally agree that it can be over & above 12% for employee. But the base salary on which both sides have to contribute cannot be different. VPF in the above case can be exercised but on Rs 6500/- only & not Rs 10000. If one base salary is not followed for calculating both sides PF, there would be variance in 3.67% (difference of EPF & EPS). Also Admin charges (1.10%) cant be calculated on two bases. We have to have one baseFor eg:
1) Calculation on different base salary:
Rs 10000 x 12% = 1200 (Employee)
Rs 6500 x 12% = 780 (Employer out of which 8.33% or max Rs 541 goes to EPS 7 remaining Rs 239
goes to EPF)
Here you can see that both contributions are not equal.
2) Calculation on one base salary:
Rs 6500 x 12% = Rs 780 (employee)
Rs 6500 x 12% = Rs 780 (Employer out of which 8.33% or max Rs 541 goes to EPS 7 remaining Rs 239
goes to EPF)
As you can see both contributions are equal
3) Calculation when employee chooses VPF (say 20%) on one base:
Rs 6500 x 20% = 1300 (Employee)
Rs 6500 x 12% = 780 (Employer out of which 8.33% or max Rs 541 goes to EPS 7 remaining Rs 239
goes to EPF)
The above case is OK even if both sides are not contributing same amount since employee has chosen
VPF option
The point I want to drive is that there cant be two bases while calculating contribution. It will create a of reconciliation issue & even the EPF software doesn't have the provision of 02 different bases. I totally agree with you VPF point but even that has to be on one base salary. It is not possible that employer is contributing on one salary base & employee on another.
I hope you are getting my point of discussion.
Regards
From India, Mumbai
I think you are looking at it from Voluntary PF angle wherein I totally agree that it can be over & above 12% for employee. But the base salary on which both sides have to contribute cannot be different. VPF in the above case can be exercised but on Rs 6500/- only & not Rs 10000. If one base salary is not followed for calculating both sides PF, there would be variance in 3.67% (difference of EPF & EPS). Also Admin charges (1.10%) cant be calculated on two bases. We have to have one baseFor eg:
1) Calculation on different base salary:
Rs 10000 x 12% = 1200 (Employee)
Rs 6500 x 12% = 780 (Employer out of which 8.33% or max Rs 541 goes to EPS 7 remaining Rs 239
goes to EPF)
Here you can see that both contributions are not equal.
2) Calculation on one base salary:
Rs 6500 x 12% = Rs 780 (employee)
Rs 6500 x 12% = Rs 780 (Employer out of which 8.33% or max Rs 541 goes to EPS 7 remaining Rs 239
goes to EPF)
As you can see both contributions are equal
3) Calculation when employee chooses VPF (say 20%) on one base:
Rs 6500 x 20% = 1300 (Employee)
Rs 6500 x 12% = 780 (Employer out of which 8.33% or max Rs 541 goes to EPS 7 remaining Rs 239
goes to EPF)
The above case is OK even if both sides are not contributing same amount since employee has chosen
VPF option
The point I want to drive is that there cant be two bases while calculating contribution. It will create a of reconciliation issue & even the EPF software doesn't have the provision of 02 different bases. I totally agree with you VPF point but even that has to be on one base salary. It is not possible that employer is contributing on one salary base & employee on another.
I hope you are getting my point of discussion.
Regards
From India, Mumbai
Administration charge is paid based on salary on which provident fund is contributed which needs to be taken care or administered by the EPFO. Truly in this case it should be based on salary as per employees’ contribution. At the same time EDLI and administration charges on EDLI are calculated on the basis of a salary subject to 6500 per employee. That means, even if both employees and employer are contributing on a higher salary rather than 6500 per employee, there can be two bases, one for PF contribution part and another for Pension fund contribution, EDLI and its admin charges.
I know that this is not a case of voluntary contribution because VPF is a percentage higher than 12% on salary and in the present case the rate of contribution remains the same, ie, 12% but only the PF qualifying salary changes from 6500 to 10000. The very provisio to para 29(2) is to permit employees to contribute PF on higher amount of salary holding , at the same time, that the employer is under NO OBLIGATION to pay the same amount as calculated on such higher salary. That does not mean that employer should not contribute on higher salary. Employer can contribute on higher PF qualifying salary and there are a lot of companies which follow this practice.
If we have two PF qualifying salaries, that is salary on which employees contribute and salary on employer contributes, the calculation will not be easy and we may not be able to apply direct formulae in Excel file. We can put salary on which employees contribute as PF qualifying salary and work out the employees’ share of contribution from those salaries. In pay roll software the same can be incorporated without difficulties. I have worked in such payrolls where we have two PF qualifying salaries, one for employees which allows to take 12% on basic and DA without any limit and another for employer contribution which will not count any amount higher than 6500.
Madhu.T.K
From India, Kannur
I know that this is not a case of voluntary contribution because VPF is a percentage higher than 12% on salary and in the present case the rate of contribution remains the same, ie, 12% but only the PF qualifying salary changes from 6500 to 10000. The very provisio to para 29(2) is to permit employees to contribute PF on higher amount of salary holding , at the same time, that the employer is under NO OBLIGATION to pay the same amount as calculated on such higher salary. That does not mean that employer should not contribute on higher salary. Employer can contribute on higher PF qualifying salary and there are a lot of companies which follow this practice.
If we have two PF qualifying salaries, that is salary on which employees contribute and salary on employer contributes, the calculation will not be easy and we may not be able to apply direct formulae in Excel file. We can put salary on which employees contribute as PF qualifying salary and work out the employees’ share of contribution from those salaries. In pay roll software the same can be incorporated without difficulties. I have worked in such payrolls where we have two PF qualifying salaries, one for employees which allows to take 12% on basic and DA without any limit and another for employer contribution which will not count any amount higher than 6500.
Madhu.T.K
From India, Kannur
Dear Sir
I have worked with the official PF software provided by EPFO & it does not have provision for 02 base salaries. Also baring VPF contributions, all other contributions (employer & employee side) are shown equal.
Further to this if you read Para 29(2) word by word, it appears that employees contribution is dependent upon employers contribution & not vice-versa. Therefore, till there is no VPF contribution, both sides have to be same.
Also private software can also take one base salary for EPF & not two as inquired from our vendor.
Since this topic has really fascinated me, it would be really helpful if you can upload an excel sheet to show how you will calculate all the contribution/charges with two base EPF salaries. Just 4-5 employee dummy data would suffice to make this point clear.
Looking forward to the above for the benefit of all our fraternity.
Regards
From India, Mumbai
I have worked with the official PF software provided by EPFO & it does not have provision for 02 base salaries. Also baring VPF contributions, all other contributions (employer & employee side) are shown equal.
Further to this if you read Para 29(2) word by word, it appears that employees contribution is dependent upon employers contribution & not vice-versa. Therefore, till there is no VPF contribution, both sides have to be same.
Also private software can also take one base salary for EPF & not two as inquired from our vendor.
Since this topic has really fascinated me, it would be really helpful if you can upload an excel sheet to show how you will calculate all the contribution/charges with two base EPF salaries. Just 4-5 employee dummy data would suffice to make this point clear.
Looking forward to the above for the benefit of all our fraternity.
Regards
From India, Mumbai
Sorry, I do not work it out in Excel but I use to approve the sheets prepared by my Executives of Personnel Department. I am sure, there should be provision in the payroll software to deal with such situation.
Madhu.T.K
From India, Kannur
Madhu.T.K
From India, Kannur
Dear Sunil
In my view. the proviso to 29(2) of the P.F Scheme 1952 does not speak of any contribution on higher salary than Rs. 6500/-.What it says is only about admissibility of contribution by the employee at a rate higher than 10% or 12% on the wages as the case maybe but on the amount higher than Rs.6500/-. Thus the Para is misunderstood. However Mr.Madhu is right in saying the the P.F calculations can have two seperate bases one for employee and another for employer. The appropriate para that covers the issie is Para 26-A. I invite your attention to proviso to Sub-para(2) of Para 26-A which states that even though an employee is entitled to pay contribution on wages higher than Rs.6500/-p.m, the employer is not obliged to contribute on more than Rs.6500/-p.m.trust this would set the issue at rest.
B.Saikumar
HR & labour law Advisor
Mumbai
09930532927.
From India, Mumbai
In my view. the proviso to 29(2) of the P.F Scheme 1952 does not speak of any contribution on higher salary than Rs. 6500/-.What it says is only about admissibility of contribution by the employee at a rate higher than 10% or 12% on the wages as the case maybe but on the amount higher than Rs.6500/-. Thus the Para is misunderstood. However Mr.Madhu is right in saying the the P.F calculations can have two seperate bases one for employee and another for employer. The appropriate para that covers the issie is Para 26-A. I invite your attention to proviso to Sub-para(2) of Para 26-A which states that even though an employee is entitled to pay contribution on wages higher than Rs.6500/-p.m, the employer is not obliged to contribute on more than Rs.6500/-p.m.trust this would set the issue at rest.
B.Saikumar
HR & labour law Advisor
Mumbai
09930532927.
From India, Mumbai
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