12% PF on the full basic salary AND 12% on ₹15,000

Ask the Community Statutory Compliance
1

Is it permissible for an organization to apply 12% PF on the full basic salary for some employees, while limiting it to 12% on ₹15,000 for others, based on their individual requests?

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Hi @Gireesh

Yes, In the PF we have Fixed PF and Variable PF option, and it is permissible as well. But we need to maintain separate data for this as well

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Yes, you can. You can get it configured in GreytHR.

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Hi Gireesh,

1. PF Contribution Requirement under Law

  • The law mandates both employer and employee contributions at 12% of “basic wages”.

  • For employees whose basic salary is ₹15,000 or less, PF coverage is mandatory, and the employer must contribute 12% of the actual basic.

  • For employees whose basic wages exceed ₹15,000 at the time of joining, they are classified as “excluded employees” and coverage is optional (subject to joint declaration and EPFO approval if enrolled voluntarily).

2. Capping at ₹15,000 – Employer’s Discretion, Not Employee’s

  • For employees earning more than ₹15,000, it is permissible for an employer to limit its contribution to 12% of ₹15,000 (i.e. ₹1,800/month), but this must be:

    • Consistently applied,

    • Clearly stated in company policy, and

    • Not discriminatory or selectively based on employee preference.

You cannot allow an employee to “request” higher or lower contribution coverage arbitrarily if the employer is not following a uniform approach.

3. Differential Treatment Must Not Violate “Equality” Principle

  • If some employees on identical salary structures and job levels are treated differently without objective justification (e.g. different contribution base), this may violate principles of fairness and could be challenged under labor law.

  • Employers may voluntarily contribute on higher wages (i.e. full basic) for all or a defined class of employees, but must document it in the wage policy or employment agreement.

4. EPFO Position and Audit Risk

  • EPFO allows higher contributions (above ₹15,000) on a voluntary basis.

  • However, auditors and inspectors may raise objections if:

    • There is no uniform policy,

    • The decision appears arbitrary,

    • It creates differential treatment without proper classification (e.g., grade, level, or role).

Recommended Approach

If your organization wants to allow PF on full basic for some employees, and capped at ₹15,000 for others:

  • Create a written internal policy classifying employees by grade or designation (e.g. senior management gets PF on full basic, others capped at ₹15,000).

  • Avoid using “employee choice” as the sole reason.

  • Include PF treatment in the appointment letter or HR policy.

  • Obtain joint declarations where required.

  • Be consistent and document exceptions with proper rationale.

Avoid These Pitfalls

  • Letting employees pick and choose the PF base.

  • Having no written policy but differing practices.

  • Exempting some from full PF just to reduce cost, without legal support.

Regards,

Bhuvana Anand

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Thank you so much for the detailed clarification!

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Thanks a lot for the reply !!!

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Thanks a lot for the reply !!!.

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