EPFO contribution above ceiling limit - If I want to reduce the contribution to the 15000/- limit?

Dear All,

I joined an organization where EPFO is deducted on the actual basic salary, i.e., above the 15000/- ceiling limit. If I want to reduce the contribution to the 15000/- limit, what is the process and what are the consequences?

Thanks in Advance.

Sanjay Paul

If your question is from the employer side, that you have joined an organization as the Personnel Manager and would like to bring a practice of deducting the PF to the statutory ceiling of Rs 15,000, then I would say that there are no legal issues in bringing the contribution from the actual salary to Rs 15,000. This is supported by a Supreme Court verdict in which the Court said that an employer who had earlier contributed on the actual salary can reduce the PF contributing salary to Rs 15,000 (at the time of the verdict, it was Rs 6,500) and the EPFO cannot challenge, saying that PF qualifying salary cannot be reduced.

But in this exercise, you have to take the employees into confidence. Obviously, contribution to PF on the actual salary having been accepted as one of the terms and conditions of employment, when you change it, you should give them notice, preferably in the prescribed form following section 9A of the Industrial Disputes Act. You can offer the employer contribution lost by reducing the PF qualifying salary in other forms of benefits. Without notice (21 days before implementation) and without taking them into confidence, you should not do it.

If your query is not from the employer's side but as an employee who is not interested in getting your PF deducted on actual salary, then it is a policy matter. You need to check what others are doing. Legally, you can very well say that your contribution to PF should be restricted to 12% of Rs 15,000 only. The employer would also restrict his contribution accordingly. But why should you require the deduction to be made on Rs 15,000 if the employer is ready to contribute it on the actual salary?

Dear Sir,

Thank you for the information provided. I am inquiring from the employer's side and would like to reduce the PF limit to 15,000, taking into consideration the suggestions made. The same approach can be applied to ESI contributions, meaning deducting and paying only for those employees whose gross salary is below 21,000. What about the employees who still have deductions even if they are earning higher wages? Can we stop contributing for them?

Thanks & Regards

Yes, if the employees agree that the employer's contribution shall be restricted to 12% of Rs 15,000, you can do it.

In ESI, you cannot cover an employee whose salary is more than Rs 21,000. The employee whose salary exceeds Rs 21,000 should be excluded from the start of the next contribution period, and there is no option to continue to contribute. If you have employees with salaries over Rs 21,000 contributing to ESI, you should stop it because you cannot keep them under ESI. The system would accept the contribution because ESI is contributed based on the gross salary (minus some components like traveling allowance and washing allowance), but that salary shall include overtime wages as well. Thus, the ESI contribution salary may exceed Rs 21,000 (due to overtime wages), but if the salary without overtime wages and the allowances specifically excluded, like traveling allowances and washing allowances (permitted only if a uniform is provided), exceeds Rs 21,000, the employee will become uncovered from the next contribution period onwards.

If you have employees who are contributing to PF on a higher salary than Rs 15,000, that can be withdrawn only with the request of the concerned employee. This is because their contribution to PF will not cost the employer anything. Therefore, if an employee wishes that their PF should be deducted based on the actual salary, they can contribute it voluntarily.