PF in case of gross salary less than ceiling limit - Will it be 12% of gross salary for both employer and employee contributions?

When the salary for the purpose of PF is Rs. 15,000, the LOP should be proportionate to Rs. 15,000, and only then will equity be met. If we contribute it based on Rs. 15,000 itself because even after the deduction the salary would still be above Rs. 15,000, then the employer would be unjust to those who have worked all days. For example, in the case of an employee with an actual gross salary of Rs. 60,000, the employer will contribute Rs. 1,800 even if the employee has worked for 8 days, as the earned gross will still be above Rs. 15,000 (it should be Rs. 16,000 for 8 days). However, for an employee with a lower salary, say Rs. 15,000 per month, the contribution for each day of absence will decrease.

Furthermore, if PF qualifying salary is shown as Rs. 15,000 when there are days of leave without pay, no NCP days can be shown. In case of loss of pay, the employee should indeed bear the consequences in the form of NCP.

In the EPF records, when an employee's salary is Rs. 15,000, why does the EPFO insist that the PF contribution should be based on Rs. 15,000 even during non-contributory days?

While it is true that Enforcement will conduct a 7A enquiry based on the records, I doubt they can demand full contribution on Rs. 15,000 when the employee has not earned the full salary. If your Payroll system is linked to attendance and PF monthly returns (now ECR), there will likely be a mismatch in NCP. Previously, we used to generate NCP days to be submitted with pension requests. If extracted directly from the payroll, it would indicate NCP days, but the PF records would lack NCP since the employer had remitted PF based on Rs. 15,000 even during NCPs. ECR now has a separate column for NCP. I believe we can only show the non-contributory periods if we display the PF qualifying salary as less than Rs. 15,000, proportionately deducting the LOP from Rs. 15,000.

Thank you, Madhu, for the reply. So, this 4000 rupees contribution will be from the employer, and 4000 rupees from the employee's side, is that correct?

Gross Salary for 30 days: 45,000 Worked for 8 days, Therefore, Gross salary: 12000 PF ceiling limit is: 15,000 PF: (15000/30)*8 days = 4000

LOP days are applicable for those employees whose contribution for EPS will be less than ₹15,000 due to the effect of LOP to calculate the pension properly. Even after LOP, if the basic is more than ₹15,000 and PF contribution is made up to ₹15,000 along with EPS – there will be no effect of LOP.

Therefore, there will be no effect on PF and EPS contribution and accordingly no effect of LOP until the basic is below ₹15,000 and contribution is less in PF & EPS.

In case the employee and organization are contributing on a higher salary PF and EPS, then any LOP should be considered for both PF and EPS.

The above is a bit complicated and difficult to understand. I had a detailed discussion with several Asst. PF Commissioners where one or two of them clarified the items, stating that in case of LOP, if the basic is more than ₹15,000 and the contribution is restricted to ₹15,000, then LOP should not be considered as the contribution is paid on ₹15,000.

S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions +91 98310 81531 [Login to view]

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Thank you so much for all the responses. This is very interesting. For our one employee, below is the salary component:

Basic: 10800
HRA: 5400
Other allowance: 10800
Gross: 27000

In this case, PF contribution by employer and employee is 1800 rupees each (ceiling limit 15,000). Is this correct?

Let's say if this employee started working at the end of the month and worked only for 3 days out of 30 days. In that case, below is the salary component:

Basic: 1080
HRA: 540
Other allowance: 1080
Gross: 2700

In this case, PF contribution by employer calculated on ceiling limit: = (15000/30)*3 days, which will be 1500 rupees. Also, employee contribution will be 1500 as well.

Please let me know if I am correct.

PF contribution will be on 1080 + 1080 = 2160/- not on 15,000/-.

S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions +91 98310 81531 [Login to view] USD HR Solutions – To Strive towards excellence with effort and integrity

Mr. Nanu should have discussed the issues with so many APFCs, but did they ever answer one question: how can the contribution be the same for two employees whose PF qualifying salary is the same, i.e., Rs 15,000, when one person has not worked for all the 30 days or when there are some non-contributing periods?

@Madhu Sir, Thank you for your quick responses.

Can you please let me know if this is correct?

For us, one employee salary component is as below:

Basic: 10800
HRA: 5400
Other allowance: 10800
Gross: 27000

In this case, PF contribution by the employer and employee is 1800 rupees each (ceiling limit 15,000). Is this correct?

Let's say if this employee started working at the end of the month and worked only for 3 days out of 30 days. In that case, below is the salary component:

Basic: 1080
HRA: 540
Other allowance: 1080
Gross: 2700

In this case, PF contribution by the employer calculated on the ceiling limit: = (15000/30)*3 days, which will be 1500 rupees. Also, the employee's contribution will be 1500 as well.

Please let me know if I am correct.

Yes. If the employee had worked only for 3 days, then certainly the PF qualifying salary should be Rs. 1500, and the contribution by the employee should be Rs. 180 (12% of 1500). The employer's share should also be Rs. 180, bifurcated as Rs. 125 towards EPS and Rs. 55 towards PF.

PF Gross = Basic + DA + other allowances (except production-related incentives, HRA, etc.) as per the Apex court verdict and definition of Basic Wages.

PF & EPS contribution is always determined based on the actual earned PF Gross, even if the organization decides to limit the contribution up to the statutory limit (currently 15,000/- per month). When the earned PF Gross exceeds 15,000/- per month, it is restricted to 15,000/-.

Under no circumstances can the actual PF Gross of any employee be restricted to 15,000/- per month, as the contribution has been limited to 15,000/- per month - these two are different.

Now, how to deal with LOP cases. In the case of any LOP, the concerned employee always receives less salary than their notional salary, resulting in a loss to the employee. Secondly, how to show LOP days in the EPFO Portal. As long as the contribution is made on 15,000/- per month, there will be no LOP shown in the EPFO portal. However, when the PF and EPS contribution falls below 15,000/- or the notional salary, whichever is less, LOP days should be reflected in the EPFO Portal for EPS calculation.

Let us take the example of an anonymous friend:

Basic - 10,800
HRA - 5,400
Other allowances - 10,800
Monthly Gross - 27,000/-

Here, PF Gross is 10,800 + 10,800 = 21,600/- per month. The organization has restricted PF & EPS contribution up to 15,000/- per month.

If there are 5 days of LOP, then the PF Gross will be 21,600/30 x 25 = 18,000/-. Therefore, the PF and EPS contribution will be based on 15,000/- up to the statutory limit as per the organization's policy. There will be no LOP shown in the EPFO portal, as the contribution has been made on 15,000/- per month.

Similarly, in the case of 3 days present, the PF Gross will be 1080 + 1080 = 2160/-, which is far below 15,000/-. The PF & EPS contribution will be based on 2160/-, and LOP days should be shown in the EPFO Portal. The number of LOP days shown in the EPFO portal will be 18 days instead of 27 days. The calculation is (15,000 - 2160) / 720 (per day PF gross) = 18.

All of the above are mathematical logic, nothing subjective. In the case of 5 days LOP, it will be shown in payroll PF gross 18,000/-, but if we follow Mr. Madhu T K's logic, it will be below 15,000/-, which will not be accepted by the EPFO as well as the employee.

In labor laws, there are certain areas where strong mathematical logic is essential - Factories Act OT single hour and double hour concept, leave earning concept, Bonus Act for organizations with one balance sheet working in more than one state, and minimum wages that randomly vary in different skill categories in different states with a significant amount of allocable surplus to determine the percentage of Bonus, determination of wages as per the new labor codes, etc.

@Mr. Madhu T K - Lastly, please do not address me as Nanu but address me as S K Bandyopadhyay or in short SKB, which is my name.

S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions +91 98310 81531 skb@usdhrs.in USD HR Solutions – To strive towards excellence with effort and integrity

Dear S K Bandyopadhyay,

Firstly, let me beg pardon for addressing you by your username.

Your observations about PF qualifying salary are not correct if viewed from the ethical and logical perspectives. If your establishment has been paying contributions on Rs 15,000 even in the case of a few days of Leave Without Pay (LOP), then you must continue this practice as directed by the PF Commissioners. However, this process is incorrect and can be challenged in court. The contribution payable by the employer for an employee who has worked for 30 days should never be equal to that of an employee who has worked for only 10 days. Contributing on Rs 15,000 for both these employees goes against ethics. In the scenario where the non-contributory period for an employee who worked all days and one who worked for just 10 days is equal, there is a legal error. The EPF Officers might have mistakenly directed you to pay on Rs 15,000 since there is no legal basis supporting their observation. For the EPFO, Rs 15,000 is considered the salary when the employer limits contributions to that amount. The EPFO cannot demand contributions on any salary exceeding Rs 15,000.

We will delve into the landmark Marathwada Gramin Bank case (Supreme Court) in another two days, not tomorrow, as I won't be logging into CiteHR tomorrow due to prior engagements.