Dear Professionals,
Our establishment is registering under the Provident Fund (PF) for the first time. We are receiving different suggestions from our employees regarding the wage limits for PF contributions. Some employees are asking to consider the wage limit of ₹15,000, while others are suggesting that their PF be deducted on their full basic salary, even if it exceeds ₹15,000 (for example, ₹50,000).
Can we apply different wage limits for different employees in this case? What would be the best approach?
Thank you in advance for your guidance.
From India, Chennai
Our establishment is registering under the Provident Fund (PF) for the first time. We are receiving different suggestions from our employees regarding the wage limits for PF contributions. Some employees are asking to consider the wage limit of ₹15,000, while others are suggesting that their PF be deducted on their full basic salary, even if it exceeds ₹15,000 (for example, ₹50,000).
Can we apply different wage limits for different employees in this case? What would be the best approach?
Thank you in advance for your guidance.
From India, Chennai
Hi Few inputs >>
>EPF is mandatory for monthly wages till 15000/- (excluding HRA or variable pays) with Employees of 20 or more.
>Once EPF is registered even number of EEs below 20, contributions to be paid and continued
>It is not mandatory to contribute EPF if wages above 15000/- , provided as best practice to provide competitive in market and EEs standards, majority establishments contribute on actual wages (Basic) and add it as part of CTC.
>In case employer willing to stick on 15000/- , then VPF is an option to employees to contribute above 15000/- wages,
From India, Bangalore
1>EPF is mandatory for monthly wages till 15000/- (excluding HRA or variable pays) with Employees of 20 or more.
>Once EPF is registered even number of EEs below 20, contributions to be paid and continued
>It is not mandatory to contribute EPF if wages above 15000/- , provided as best practice to provide competitive in market and EEs standards, majority establishments contribute on actual wages (Basic) and add it as part of CTC.
>In case employer willing to stick on 15000/- , then VPF is an option to employees to contribute above 15000/- wages,
From India, Bangalore
It is always good if you follow a uniform system for all the employees. If the employer's contribution is not expected to be on a maximum salary of Rs 15000, then make it common for all the employees. It is true that employees can opt to contribute on higher salary so that they will get the benefit of 80C tax exemption. But if you allow it in this stage, you will be fed up with a lot of adjustments in the HRMS/ payroll software. Therefore, to start with, make the PF applicable only to those whose PF qualifying salary (let it be gross salary without HRA and Variable pay) is not above Rs 15000. You should also ask if there are any employee who is an existing member of EPF as declared in his form 11, and if available he should also be brought under EPF now. In future, you can consider the individual options of higher contribution, ie, contribution on higher rate or higher basic salary.
From India, Kannur
From India, Kannur
Thank you, Suraj Sir and Madhu Sir, for your insights.
I wanted to inquire about how we should structure the bifurcation of salaries, as currently, 100% of the CTC is being considered as the basic salary, with no allowances provided. This has resulted in a higher basic for all employees.
For instance, if the CTC is ₹50,000, what percentage should be allocated as the basic salary, how much should be considered as the employer's contribution towards PF (if we keep minimum of Rs 1800 as PF)? Should we introduce any other allowances to keep the basic salary at a minimum level and if so what should be the % of CTC?
Since we are a new organization and haven't established any salary bifurcation yet, we believe it's prudent to implement one now as the company continues to grow steadily.
From India, Chennai
I wanted to inquire about how we should structure the bifurcation of salaries, as currently, 100% of the CTC is being considered as the basic salary, with no allowances provided. This has resulted in a higher basic for all employees.
For instance, if the CTC is ₹50,000, what percentage should be allocated as the basic salary, how much should be considered as the employer's contribution towards PF (if we keep minimum of Rs 1800 as PF)? Should we introduce any other allowances to keep the basic salary at a minimum level and if so what should be the % of CTC?
Since we are a new organization and haven't established any salary bifurcation yet, we believe it's prudent to implement one now as the company continues to grow steadily.
From India, Chennai
There is no such rule that the salary should have bifurcation, and only certain amount should be treated as basic pay. As per law, the amount of salary as per contract of employment is wages/ salary only. That is the wages on which you should contribute ESI, EPF, Bonus, Gratuity etc. But under each Act certain threshold limits are prescribed, and employees getting more than the prescribed amounts will go out of the coverage of each Act. Accordingly, an employee whose wages exceeds Rs 21000 per month will not be covered by ESI and Bonus. An employee whose wages exceeds Rs 15000 at the time of joining need not be given PF. At the same time, the entire sum will be treated as wages for computation of gratuity.
There are unwritten practices adopted by HR professionals whereby they describe some elements of salary as 'allowances'. It is a system of showing the minimum amount as Basic Wages, and show the larger portion of the salary as allowances. This is just to reduce the statutory contributions towards PF, Bonus, Gratuity etc. But there is no legal sanctity to this practice and at the end of the day the employer would be help responsible to pay the statutory contributions and payments on gross salary. It is true that allowances which are not fixed by amounts and are paid depending upon the category of employees, their place of posting etc are not part of salary. But many of the HRs do not consider this rule but just keep the components as allowances out of the scope of wages.
Legally whatever earned by an employee is remuneration. year on year an employee is given an increase in the salary. An increase is salary is given for two reasons, one, to compensate the increase in cost of living, and two to reward his performance. The former is reflected by means of an increase in dearness allowance and the latter is to be reflected in basic wages. Unfortunately many private companies do not pay DA, and whatever increase is to be given will be added only under allowances. If this is brought to the appropriate authorities, then he will be able to establish very easily that allowances are not actually compensatory allowances but are part of wages only.
In order to avoid future confusions and risks, it is always good if you have a system of salary structure with basic salary, dearness allowance, and other allowances varying according to categories of employees and their place of posting. Moreover, the basic pay and dearness allowance should always be higher than the minimum wages notified by the state government. This will protect the employer to a certain extent.
In short, bifurcation is just artificial arrangement. There are a lot of judgements which say that the total salary as per contract of employment represents the wages as per law on which gratuity, PF or other benefits should be calculated. Any attempt to bifurcate it in such a way that the least is treated as basic wages is arbitrary. In Surya Rashmi Ltd Vs Employees Provident Fund, Justice Sinha has stated: “The wage structure and the components of salary have been examined on facts, both by the authority and the appellate authority under the Act, which have arrived at a factual conclusion that allowances in question were essentially a part of the basic wage camouflaged as part of an allowance so as to avoid deduction and contribution accordingly to the Provident Fund account of the employees.”
Therefore, by bifurcating the salary you will not gain anything. But when an employer is only bound to pay statutory wages, the minimum wages that the state has fixed, the employer can bifurcate the remuneration paid to his employees in to two heads, ie, basic wages which should be equal to or more than the minimum wages, and allowances of his choice.
From India, Kannur
There are unwritten practices adopted by HR professionals whereby they describe some elements of salary as 'allowances'. It is a system of showing the minimum amount as Basic Wages, and show the larger portion of the salary as allowances. This is just to reduce the statutory contributions towards PF, Bonus, Gratuity etc. But there is no legal sanctity to this practice and at the end of the day the employer would be help responsible to pay the statutory contributions and payments on gross salary. It is true that allowances which are not fixed by amounts and are paid depending upon the category of employees, their place of posting etc are not part of salary. But many of the HRs do not consider this rule but just keep the components as allowances out of the scope of wages.
Legally whatever earned by an employee is remuneration. year on year an employee is given an increase in the salary. An increase is salary is given for two reasons, one, to compensate the increase in cost of living, and two to reward his performance. The former is reflected by means of an increase in dearness allowance and the latter is to be reflected in basic wages. Unfortunately many private companies do not pay DA, and whatever increase is to be given will be added only under allowances. If this is brought to the appropriate authorities, then he will be able to establish very easily that allowances are not actually compensatory allowances but are part of wages only.
In order to avoid future confusions and risks, it is always good if you have a system of salary structure with basic salary, dearness allowance, and other allowances varying according to categories of employees and their place of posting. Moreover, the basic pay and dearness allowance should always be higher than the minimum wages notified by the state government. This will protect the employer to a certain extent.
In short, bifurcation is just artificial arrangement. There are a lot of judgements which say that the total salary as per contract of employment represents the wages as per law on which gratuity, PF or other benefits should be calculated. Any attempt to bifurcate it in such a way that the least is treated as basic wages is arbitrary. In Surya Rashmi Ltd Vs Employees Provident Fund, Justice Sinha has stated: “The wage structure and the components of salary have been examined on facts, both by the authority and the appellate authority under the Act, which have arrived at a factual conclusion that allowances in question were essentially a part of the basic wage camouflaged as part of an allowance so as to avoid deduction and contribution accordingly to the Provident Fund account of the employees.”
Therefore, by bifurcating the salary you will not gain anything. But when an employer is only bound to pay statutory wages, the minimum wages that the state has fixed, the employer can bifurcate the remuneration paid to his employees in to two heads, ie, basic wages which should be equal to or more than the minimum wages, and allowances of his choice.
From India, Kannur
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