FAQ on Provident Fund Contributions
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What are the contributions payable by the employer and employee?
- The contributions payable by the employer and the employee under the scheme are 12% of PF wages. From the employer’s share of contribution, 8.33% is contributed towards the Employees’ Pension Scheme and the remaining 3.67% is contributed to the EPF Scheme. Employer’s contribution towards Employees’ Deposit-linked Insurance Scheme is 0.50% and the administrative charges are 0.50%.
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Can an employee opt-out of the Schemes under the EPF Act?
- An employee with a basic salary of over Rs. 15,000 who has never been a member of EPF can opt out of the scheme. But once they become a member, they cannot opt-out of the scheme.
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What if an employee while joining an establishment has a basic salary below Rs. 15,000 and after some time his/her PF wages increase above Rs. 15,000, does he/she have an option to opt out of his/her membership from the provisions of the EPF Act?
- If an employee’s salary at the time of joining is less than Rs. 15,000 and it later gets increased to over Rs. 15,000, while still being in service, they are added to the member's list for the provident fund mandatorily. They do not have the option to opt-out of the scheme once enrolled.
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Is EPF deducted from the stipend?
- A trainee or an intern is not an employee by the definition of the Act and the schemes defined under the Act. EPF is not deducted from the stipend earned by a trainee or an intern subject to the condition that such trainees are covered under either the Apprenticeship Act or Industrial Employment (standing orders) Act or the interns are engaged through recognized institutions undergoing on-job training as part of their curriculum.
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Can an employer restrict his share of contribution to the wage ceiling limit of Rs. 15,000?
- An employer is under no obligation to contribute over and above the PF wage ceiling limit. The employer may, however, voluntarily contribute to higher wages.
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In case an employee leaves an establishment where this Act applies and joins an organization where this Act doesn’t apply, what will happen to his/her accumulated funds?
- In such a case the accumulated amount shall be transferred to the employee’s fund, or, in the Provident Fund of the establishment left by him/her, within such time as may be specified by the Central Government.
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Can an employer deduct the employer’s contribution towards EPF from the wages of employees?
- No, an employer cannot deduct the employer’s contribution towards EPF from the wages of employees. According to Section 14(1A) of the Act, any such deduction is a criminal offence and shall be punishable with imprisonment for a term which may extend to three years but shall not be less than one year and a fine of Rs. 10,000.
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Can a member pay contribution beyond the wage ceiling limit?
- Yes, the member can contribute beyond the wage ceiling limit of Rs. 15,000. The total contribution i.e., voluntary + mandatory can be up to Rs. 15,000 per month. The member can also contribute on higher wages i.e., greater than Rs. 15,000 but only up to a maximum limit of 100% of the PF wages, provided they get permission from the APFC/RPFC as per the provisions of para-26(6) of the scheme. The employer may restrict his/her share to the statutory rate.
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What are the components to be considered for PF contribution from the wages?
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After the latest Supreme Court Judgement on the Surya Roshni case, dated 28th February 2019, the contribution shall be calculated based on monthly pay containing the following components drawn during the whole month whether paid on a daily, weekly, fortnightly or monthly basis:
- Basic wages
- Dearness Allowances
- Retaining Allowances
- Conveyance Allowances
- Other Allowance
- Special Allowance
- Leave Travel Allowances
- Fixed cash Allowance (Management allowance, educational Allowance, Medical Allowance, Telephone, Food Allowance etc.)
- Petrol Reimbursement (without bills and without supporting documentation/data to substantiate the reimbursement is for official purposes)
- City Compensatory Allowance or any other allowance paid as a fixed component, uniformly and universally having no direct nexus to the outcome of an employee’s normal work.
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After the latest Supreme Court Judgement on the Surya Roshni case, dated 28th February 2019, the contribution shall be calculated based on monthly pay containing the following components drawn during the whole month whether paid on a daily, weekly, fortnightly or monthly basis:
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Which are the excluded components for the computation of EPF?
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These components are excluded while calculating the EPF:
- HRA allowance (House rent allowance)
- Attendance allowance
- Night shift allowance
- Washing allowance
- Relocation allowance
- Overtime allowance
- Canteen allowance
- Various Incentives provided for a particular employee
- Bonus or Commissions payable to a particular Employee
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These components are excluded while calculating the EPF:
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Can an employee become a member of the Pension Scheme without contributing towards the EPF?
- No. An employee can become a member of the Employees’ Pension Scheme only by the EPF membership.
*Refer the FAQs on withdrawals for applicable terms and conditions
SHRM SSO