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 you would reduce 5 days from the entire gross wage and derive the EPF wage to contribute to EPF?
Please suggest.
From India, Gandhinagar
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 you would reduce 5 days from the entire gross wage and derive the EPF wage to contribute to EPF?
Please suggest.
From India, Gandhinagar
As mentioned in the post, PF gross probably less than 50,000/- of monthly gross. In case of LOP proportionately all components of monthly gross salary are reduced. Even after 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 reduced ( less than 15000/-) PF gross.
From India, New Delhi
337From India, New Delhi
If the PF qualifying wages is Rs 15000, you should deduct the loss of pay from that only. That means, PF shall be contributed on Rs 12500 only. If you still contribute it on 15000, then the pay days will not match.
From India, Kannur
From India, Kannur
There is no relationship between PF contribution and matching of pay days. Pay days 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 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 any other deduction due to loan/advance at the deduction side then the net wages will be total earning minus total deduction.
The employee has 5 days LOP. Therefore PF gross will be 25,000/- and other allowance will be 16,667/- in 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 deduction side.
There may be another condition that PF gross is 15,000/- and other allowances is 35,000/-. Then after LOP PF gross will be 12,500/- and other allowance 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)
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From India, New Delhi
Let us consider the calculation as follows :- Monthly Gross 50,000/- and PF contribution deposited on 15,000/- cap. If we break up 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 any other deduction due to loan/advance at the deduction side then the net wages will be total earning minus total deduction.
The employee has 5 days LOP. Therefore PF gross will be 25,000/- and other allowance will be 16,667/- in 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 deduction side.
There may be another condition that PF gross is 15,000/- and other allowances is 35,000/-. Then after LOP PF gross will be 12,500/- and other allowance 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)
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From India, New Delhi
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 no of days of attendance has no relevance.
From India, Salem
From India, Salem
But if you take it on Rs 15000 for those who have LOPs, will it be a right approach? because the amount of contribution of an employee who has worked for 30/31 days will be same amount of that of an employee whose have taken a few days' leave without pay. And also, in the HRMs system, we may have a field like PF contributing salary and that may be Rs 15000. When you put 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
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
Contribution to PF is depend on actual PF gross earning not on number of days work. Therefore, the employees who have worked for 30/31 days vs employees who have worked less than 30/31 days has no relevance. As per PF & Misc. Act PF contribution is a relation of earning not on number of days present.
Now let us come to HRMS software where the logic for deducting PF contribution usually for the organizations who are restricting up to 15,000/- is "deduct PF contribution on PF gross amount subject to maximum 15,000/- or less" - not on number of days present.
There is no non contribution period in this type of case and therefore there will not be any effect on deciding service and pension amount.
We are processing pay roll for MNCs as well as Indian organizations every month through HRMS software and also interact with EPFO time to time and they are also in agreement with our logic.
S K Bandyopadhyay ( WB, Howrah)
CEO-USD HR Solutions
+91 98310 81531
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From India, New Delhi
Now let us come to HRMS software where the logic for deducting PF contribution usually for the organizations who are restricting up to 15,000/- is "deduct PF contribution on PF gross amount subject to maximum 15,000/- or less" - not on number of days present.
There is no non contribution period in this type of case and therefore there will not be any effect on deciding service and pension amount.
We are processing pay roll for MNCs as well as Indian organizations every month through HRMS software and also interact with EPFO time to time and they are also in agreement with our logic.
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
Suppose an employee whose salary is Rs 15000 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 30000 but works for 26 days in that month. In your calculation his PF qualifying salary would be Rs 15000 and his pensionable service will be 31 days.
If you take 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 upto Rs 15000 or the minimum wages fixed is rs 150000 and hence the bonus should be calculated on Rs 15000) exceeds Rs 15000 will get full bonus even if he takes a few days LOP. But the employee whose Bonus qualifying salary is Rs 15000 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 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 Non Contributing Period in the Pensionable Service records.
From India, Kannur
If you take 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 upto Rs 15000 or the minimum wages fixed is rs 150000 and hence the bonus should be calculated on Rs 15000) exceeds Rs 15000 will get full bonus even if he takes a few days LOP. But the employee whose Bonus qualifying salary is Rs 15000 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 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 Non Contributing Period in the Pensionable Service records.
From India, Kannur
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.
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.
There is no mathematical logic/ relation between the two calculations - PF & Bonus.
If we try to corelate between LOP deduction under PB Act vs PF Act it is like compare between apple and guava.
Payment of Bonus Act has been allowed proportionate deduction which 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 which ever is higher ) then after calculating bonus as per 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 PB Act.
In case of PF & Misc. Act , the contribution is depend on actual earning of PF Gross considering LOP and if the organization is intend to contribute on 15,000/- cap as per 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 pay roll 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 PF authority.
S K Bandyopadhyay ( WB, Howrah)
CEO-USD HR Solutions
+91 98310 81531
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From India, New Delhi
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.
There is no mathematical logic/ relation between the two calculations - PF & Bonus.
If we try to corelate between LOP deduction under PB Act vs PF Act it is like compare between apple and guava.
Payment of Bonus Act has been allowed proportionate deduction which 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 which ever is higher ) then after calculating bonus as per 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 PB Act.
In case of PF & Misc. Act , the contribution is depend on actual earning of PF Gross considering LOP and if the organization is intend to contribute on 15,000/- cap as per 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 pay roll 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 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
"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 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
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 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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