There are two kinds of employers. One set of employers considers PF as an employee benefit. The second set of employers considers it as a statutory obligation. The former being employee friendly will deduct 12% o the entire Salary/ Basic salary and contribute the same amount to EPF and Pension fund. The second set of employers will deduct 12% of Rs 15000 and contribute the same only. Again there may be yet another kind of employer, who will deduct the employees' share on the actual basic salary, ie, Rs 85000 in your case but will contribute his share, ie, employer's share only on Rs 15000.
The benefits:
1. The employee contributing on full basic salary, ie, Rs 85000 will get a very god investment which will give a reasonably good interest (which no other bank can provide you in the current scenario)
2. If the employer is also contributing his share on actual salary, ie, Rs 85000, the employee MAY get the benefit of higher pension based on that higher amount of PF qualifying salary when he retires at the age of 58. If the review bench strikes down the verdict of Supreme Court (and of course the High Court of Kerala) which directs the EPFO to pay pension based on actual PF qualifying salary and restricts pension on Rs 15000, then the employer's share on difference amount will be credited to the employees PF. This can be withdrawn by the employee along with his own share of contributions.
3. The employer restricting the PF contribution to 12% of Rs 15000. The employee gets more take home salary. But for an employee whose basic salary is Rs 85000, this is nothing.
4. The employer who allows the employees to contribute on higher salary than Rs 15000, will favour the employee by tax benefits under 80CC. To that extend the employer is employee friendly.
Hope the above clarifies the matter.