EPFO clarification: Employers can Limit EPF continuation up to 12% on 6,500 Per Month


EPFO clarification: Employers can Limit EPF continuation up to 12% on 6,500 Per Month

When the employee force of any factory exceeds 20 employees or when any entity attracts the provisions of the Provident Fund, Act, the employer is bound to follow the provisions of the Provident Fund Act. As per the provisions of the act, the employer is required to deduct the amount of provident Fund from the salary payable to the employee and is required to contribute the same amount and both these amounts are to be deposited to the separate Provident Fund Account maintained by the employer. The provident fund is to be deducted at the rate prescribed in the Provident Fund Act and as per the changes made there in from time to time by the Provident Fund authority.

According to the regulations applicable for the deduction of the provident fund, the rate of payment of provident fund amount is 12% of the basic wages. The said rate of 12% is minimum rate requires. However the employer can contribute provident fund at higher rate at his option. It means both employer and employee has to contribute for the provident fund every month. The minimum wages of the employee should be Rs. 6,500 for being eligible for Provident Fund deduction.

In most of the cases, we can see that the basic wages of the employees are higher then Rs. 6,500. The question arises that once the employer is contributing 12% of provident Fund on basic wages higher than Rs. 6,500, than is it mandatory to continue the same or the employer can discontinue the practice of deduction of provident fund on higher wages and may opt for deducting Provident Fund on minimum basic wages required by the act i.e. Rs. 6,500.


The problems have been aroused in the past because when the employer have reduced their contribution from contributing provident fund on higher wages and then started deducting the provident fund on basic wages as required by the law. The provident fund department has raised demands in such cases. The solution to the given problem has been given by the Ministry of Labour and Employment, Government of India wide letter number LC-2(637)2009/MH/12780 dated 8th October, 2013.

A case law was taken into consideration which was between the Marathwada Gramin Bank Karamchari & others. In this case Supreme Court held that “Where the employer makes contributions towards the PF on pay in excess of the statutory ceiling limit, these may be discontinued at any time”. It means there is no binding criteria for discontinuing the practice of contributing provident fund on higher wages then required. Further it was added that the employer is not bound to continue practice of contributing PF on higher wages then basic statutory limit. He may only be bound when he reduces the contribution below the statutory limit.

The same decision was entertained by the EPFO and has communicated to its every office that they can not forcefully ask the employer to contribute towards provident fund over and above 12% of statutory basic wages of Rs. 6,500. IT may be option to the employer and employee if they wish to contribute over and above the minimum provident fund contribution required under the law. This decision has caught the eyes of employers and employees who were compelled in past due to lack of the said clarification.


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