We have a few employees whose salary is above Rs. 6,500/-, and both the employee and employer are contributing at a rate of 12% on the full salary.
Almost all employees whose salary is above Rs. 6,500/- have made a representation to freeze the PF contribution based on the March 2013 salary. They do not wish to contribute more than the current level due to severe inflationary pressure.
For example, the current salary is Rs. 10,000/- per month, and the contribution is Rs. 1,200/-. The revised salary is Rs. 12,000/- per month, but the salary for contribution is Rs. 10,000/-.
Since the salary is already above the statutory limit, is this permitted, and what is the procedure for obtaining consent from the staff and EPFO? Forms JD-I and JD-II do not have a facility for any such declaration.
From India, Mumbai
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1Almost all employees whose salary is above Rs. 6,500/- have made a representation to freeze the PF contribution based on the March 2013 salary. They do not wish to contribute more than the current level due to severe inflationary pressure.
For example, the current salary is Rs. 10,000/- per month, and the contribution is Rs. 1,200/-. The revised salary is Rs. 12,000/- per month, but the salary for contribution is Rs. 10,000/-.
Since the salary is already above the statutory limit, is this permitted, and what is the procedure for obtaining consent from the staff and EPFO? Forms JD-I and JD-II do not have a facility for any such declaration.
From India, Mumbai
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The scheme provides for it with rhe permission of APFC.But it do not specify whether contribution on an amount between actual and statutory limit is possible. Varghese Mathew 9961266966
From India, Thiruvananthapuram
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From India, Thiruvananthapuram
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Since PFable salary cannot be reduced as per provisions of the EPF Act, you may have to deduct and contribute PF based on the new salary only. You cannot give a salary of 12000/- and deduct 1,200 PF; that would be considered a short deduction and punishable under the provisions of the Act. Since it is a statutory deduction, the opinions of employees regarding the percentage or amount of deduction do not hold any significance. The employer must comply with the law, regardless of what the employees may say or demand.
From India, Mumbai
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From India, Mumbai
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Thanks for the clarification.
In that case, is it possible to classify the payment under some other category so that it does not become coverable for PF contribution? Is it possible for us to classify the payment as an INCENTIVE/PRODUCTIVITY BONUS or any other name.
Thanks,
Powercube
From India, Mumbai
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In that case, is it possible to classify the payment under some other category so that it does not become coverable for PF contribution? Is it possible for us to classify the payment as an INCENTIVE/PRODUCTIVITY BONUS or any other name.
Thanks,
Powercube
From India, Mumbai
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You can limit your contribution on RS 6500/pm.Refer the SC decision in case of North Malabar Gramin bank Varghese Mathew 9961266966.
From India, Thiruvananthapuram
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From India, Thiruvananthapuram
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Dixon,
Your contention is completely wrong.
The PF rules provide for payment of PF at 12% on basic + DA of up to Rs. 6500. Anyone getting a salary beyond that, the contribution required for both employer and employee is limited to Rs. 780 per month (12% of 6500).
Anyone drawing more than 6500 per month and wanting to have a deduction beyond the statutory limit would need to give a letter to the company asking for voluntarily higher contributions. The employer is not required to pay higher PF for the voluntary contribution portion.
So if the employees want to freeze their PF contribution at current levels, nothing stops them from doing it as the salary is already above statutory limits.
Regarding the reduction of salary, nothing being done by the employer here amounts to a reduction of salary. In any case, the rules do not allow for the reduction of salary. It specifically mentions reducing salary to adjust for the payment of PF when it is started for the first time. Furthermore, in this case, the salary is well above the statutory limit.
From India, Mumbai
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Your contention is completely wrong.
The PF rules provide for payment of PF at 12% on basic + DA of up to Rs. 6500. Anyone getting a salary beyond that, the contribution required for both employer and employee is limited to Rs. 780 per month (12% of 6500).
Anyone drawing more than 6500 per month and wanting to have a deduction beyond the statutory limit would need to give a letter to the company asking for voluntarily higher contributions. The employer is not required to pay higher PF for the voluntary contribution portion.
So if the employees want to freeze their PF contribution at current levels, nothing stops them from doing it as the salary is already above statutory limits.
Regarding the reduction of salary, nothing being done by the employer here amounts to a reduction of salary. In any case, the rules do not allow for the reduction of salary. It specifically mentions reducing salary to adjust for the payment of PF when it is started for the first time. Furthermore, in this case, the salary is well above the statutory limit.
From India, Mumbai
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Powercube, please do not do any such thing. It is not necessary and any manipulation of salary can create problems later. It is perfectly allowable for the employee and employer to freeze the contribution limit to current levels as long as it is above the statutory limit. Each employee can give a letter specifying that they want their voluntary contribution limited to a specific amount from this time onwards. The company is not required to match the contributions beyond the limit of 780 per month.
I am glad to hear that your company is voluntarily paying higher than statutory rules. There are very few employers today willing to do that. Try to convince the employees to take advantage and keep contributions at a higher amount. They will benefit at a later date when they retire. Forced savings, especially those earning a good interest rate, are always a good idea.
Also, I hope you realize that PF is computed on basic and DA, not on the full salary.
From India, Mumbai
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I am glad to hear that your company is voluntarily paying higher than statutory rules. There are very few employers today willing to do that. Try to convince the employees to take advantage and keep contributions at a higher amount. They will benefit at a later date when they retire. Forced savings, especially those earning a good interest rate, are always a good idea.
Also, I hope you realize that PF is computed on basic and DA, not on the full salary.
From India, Mumbai
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Dear Saswata Banerjee,
I am grateful for your valuable insight. The decision to fix the contribution on the entire salary was also taken after taking the employees into confidence as a measure of goodwill and incentive to retain skilled and experienced employees.
Unfortunately, inflation is causing havoc with the budgets. Frankly, we will also be happy to limit the contribution at the statutory limit because we cannot increase salaries in line with runaway inflation and have to keep in mind the affordability.
Our consultant has advised us to seek a request letter from each and every employee drawing a higher salary and also to execute a fresh JD-1 form for submission to the PF office.
We are not sure whether we should officially intimate EPFO separately about the change or if the next monthly return and JD-1 will be good enough.
The consultants have also hinted to be prepared for a 7A enquiry. According to them, at the regional office levels, personal judgments rather than the law play a significant role.
I am attaching the Supreme Court judgment in the case of Marathwada Gramin Bank for immediate reference.
From India, Mumbai
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I am grateful for your valuable insight. The decision to fix the contribution on the entire salary was also taken after taking the employees into confidence as a measure of goodwill and incentive to retain skilled and experienced employees.
Unfortunately, inflation is causing havoc with the budgets. Frankly, we will also be happy to limit the contribution at the statutory limit because we cannot increase salaries in line with runaway inflation and have to keep in mind the affordability.
Our consultant has advised us to seek a request letter from each and every employee drawing a higher salary and also to execute a fresh JD-1 form for submission to the PF office.
We are not sure whether we should officially intimate EPFO separately about the change or if the next monthly return and JD-1 will be good enough.
The consultants have also hinted to be prepared for a 7A enquiry. According to them, at the regional office levels, personal judgments rather than the law play a significant role.
I am attaching the Supreme Court judgment in the case of Marathwada Gramin Bank for immediate reference.
From India, Mumbai
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It is not mandatory that employers' contribution should be restricted to 12% of Rs 6500. Similarly, if the employees contribute 12% on Basic + DA, which is higher than Rs 6500, the same is not termed as 'voluntary contribution' as some of the members stated, but it is only a normal contribution. Voluntary contribution is that which is contributed at a higher percentage than 12%.
The Marathwada Gramin Bank's case was centered on the act of the management withdrawing the contribution on an amount higher than 6500 and thus restricting their contribution to 12% on 6500. That means, the Bank (employer) reduced the PF qualifying salary from a higher amount to Rs 6500 after giving due notice to the employees following section 9A of the Industrial Disputes Act, which provides that 21 days' notice should be given to the employees whenever any change in service conditions is required to be made. This being a change in service conditions by way of a reduction in contribution by the employer, the employer had complied with the statutory requirements. However, PF authorities objected to the move, saying that the employer cannot reduce the PF qualifying salary as per section 12 of the EPF & MP Act. That was rejected by the Apex court, stating that the PF organization cannot ask the employer to contribute any amount that is more than 12% of 6500.
If you relate the above with the service conditions of new generation establishments that expressly state in their CTC statements supplied to the employees, you will find that PF contribution is shown as a part of the remuneration agreed upon by the employer and employee, and as such, the employer is bound to contribute.
Madhu.T.K
From India, Kannur
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The Marathwada Gramin Bank's case was centered on the act of the management withdrawing the contribution on an amount higher than 6500 and thus restricting their contribution to 12% on 6500. That means, the Bank (employer) reduced the PF qualifying salary from a higher amount to Rs 6500 after giving due notice to the employees following section 9A of the Industrial Disputes Act, which provides that 21 days' notice should be given to the employees whenever any change in service conditions is required to be made. This being a change in service conditions by way of a reduction in contribution by the employer, the employer had complied with the statutory requirements. However, PF authorities objected to the move, saying that the employer cannot reduce the PF qualifying salary as per section 12 of the EPF & MP Act. That was rejected by the Apex court, stating that the PF organization cannot ask the employer to contribute any amount that is more than 12% of 6500.
If you relate the above with the service conditions of new generation establishments that expressly state in their CTC statements supplied to the employees, you will find that PF contribution is shown as a part of the remuneration agreed upon by the employer and employee, and as such, the employer is bound to contribute.
Madhu.T.K
From India, Kannur
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Dear Madhu,
There is absolutely no problem if the CTC statement clearly shows the amount on which the PF contribution will be made. In new generation establishments, the basic salary is generally low, and most of the amount is paid as perks.
In our case, none of the employees are willing to contribute at a higher percentage. The whole issue came up only because the amount received in hand is supposedly insufficient to meet household expenditure. This appears to be the only way other than increasing salaries to put more amount in their hands. We intend to structure the salary such that the difference in employer's contribution on the higher salary and Rs. 6,500/- will also be included.
From India, Mumbai
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There is absolutely no problem if the CTC statement clearly shows the amount on which the PF contribution will be made. In new generation establishments, the basic salary is generally low, and most of the amount is paid as perks.
In our case, none of the employees are willing to contribute at a higher percentage. The whole issue came up only because the amount received in hand is supposedly insufficient to meet household expenditure. This appears to be the only way other than increasing salaries to put more amount in their hands. We intend to structure the salary such that the difference in employer's contribution on the higher salary and Rs. 6,500/- will also be included.
From India, Mumbai
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Salary Sheet & PF PT Calculation & Challan Nov 2010.xls
PF Contribution on Leave Encashment - Clarification by EPFO.pdf