Hi,
I work as a SE in a private software company and seek some clarification of the rules for the PF account and the basic salary.
Following are the questions on which I seek clarification.
1> Is there any rule stating that the basic salary of the person must be atleast 50% of the gross monthly salary.
2> Can the Company decrease the basic salary to Rs 15,000 and state that the maximum basic salary must be Rs 15,000 even if the gross monthly salary is Rs 1,00,000.
3> Suppose, the gross monthly salary of a person is Rs 1,00,000 (and if the answer to the question 1 is yes), then the PF contribution is based on Rs 50,000 (basic salary = 50% of the gross monthly salary) OR Rs 15,000.
Any links to the documents issue by the EPF would be very helpful.
Thanks in advance.
From India, undefined
I work as a SE in a private software company and seek some clarification of the rules for the PF account and the basic salary.
Following are the questions on which I seek clarification.
1> Is there any rule stating that the basic salary of the person must be atleast 50% of the gross monthly salary.
2> Can the Company decrease the basic salary to Rs 15,000 and state that the maximum basic salary must be Rs 15,000 even if the gross monthly salary is Rs 1,00,000.
3> Suppose, the gross monthly salary of a person is Rs 1,00,000 (and if the answer to the question 1 is yes), then the PF contribution is based on Rs 50,000 (basic salary = 50% of the gross monthly salary) OR Rs 15,000.
Any links to the documents issue by the EPF would be very helpful.
Thanks in advance.
From India, undefined
There is no rule which states that the basic salary should be 50% of gross salary. However, with the outcome of salary being termed as CTC and after losing the importance of structuring the salary with a basic salary and then building up with DA, HRA and other elements as percentages or fixed sums on the Basic salary to make a gross salary, the practice of first deciding the total salary or even CTC and then bifurcating it into small compartments like basic salary, HRA, conveyance allowance, lunch allowance, performance allowance etc etc, has become a standard practice among companies especially new generation companies wherein Personnel department has been replaced by HR department for no reasons. This has led to make the basic salary which is regarded as statutory salary or the salary on which various payments like PF, Bonus, leave encashments, gratuity, lay off or retrenchment compensation etc are decided, very less so that employer's "other liabilities" could be reduced. "Aggrieved by this practice" Employees Provident Fund Organisation came up with a decision that basic salary or the PF contributing salary should be at least 70% of gross salary. They were also okay with at least 60%. Therefore, many companies started bifurcating the salary as 60% as Basic salary and the rest into other allowances.
In simple terms, it is only a practice which has become a rule among the employers though there is no legal sanctity. For employees it is always good if the basic salary is high because it is on this salary that they will get their bonus, compensations, gratuity etc. For the employers, obviously, keeping the basic salary low will help them to reduce their cost.
Keeping the Basic salary at Rs 15000, would make an employee entitled to PF cover. It is not necessary that if the basic salary is above 15000, he should be excluded but he should be covered if he had been a member of the PF in his previous company and that remains unsettled. But in such a case too, the employer can restrict his contribution to 12% of Rs 15000. This is because the wages ceiling as per Provident Fund Schemes is Rs 15000. Of course, if the employer wishes to contribute on higher salary, he can do so because it is a social security investment but neither the employee nor the Provident Fund Organisation can demand that he should contribute on a salary above Rs 15000, or say, 50000, in your above example.
Madhu.T.K
From India, Kannur
4246In simple terms, it is only a practice which has become a rule among the employers though there is no legal sanctity. For employees it is always good if the basic salary is high because it is on this salary that they will get their bonus, compensations, gratuity etc. For the employers, obviously, keeping the basic salary low will help them to reduce their cost.
Keeping the Basic salary at Rs 15000, would make an employee entitled to PF cover. It is not necessary that if the basic salary is above 15000, he should be excluded but he should be covered if he had been a member of the PF in his previous company and that remains unsettled. But in such a case too, the employer can restrict his contribution to 12% of Rs 15000. This is because the wages ceiling as per Provident Fund Schemes is Rs 15000. Of course, if the employer wishes to contribute on higher salary, he can do so because it is a social security investment but neither the employee nor the Provident Fund Organisation can demand that he should contribute on a salary above Rs 15000, or say, 50000, in your above example.
Madhu.T.K
From India, Kannur
The answer to your query is a big NO according to me.The limit of Rs 15000/- is there for employers contribution.But it is not basic alone.but includes DA also if paid .If gross or basic is Rs 30000/- the employer can restrict his contribution to 12% of Rs 15000/- or pay 12% of the full salary.
From India, Thiruvananthapuram
From India, Thiruvananthapuram
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PF Contribution on Leave Encashment - Clarification by EPFO.pdf
PF clarification on leave encashment.jpg