Basic pay change without changing PF contribution amount

Ask the Community Statutory Compliance
1

Suppose a company wants to reduce the Basic pay (keeping the New wage code in mind) from 70% to 50%. The company keeps the PF contribution same (Rs 1800 i.e. 12% of 15000) for employees with basic pay more than Rs 15,000. In such case can it reduce the basic pay without any change in PF contribution amount?

For example, an employee has monthly salary of Rs 40,000, where basic pay is Rs 28,000 and HRA is Rs 12,000. The PF contribution for this employee is Rs 1800 (capping of 15000 basic as per PF Act). The company now changes the basic to Rs 20,000 and HRA to Rs 20,000, and PF contribution remains as 1800.

Is this possible?

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2

Hi Gargi,

An employer may revise the salary structure considering the Code on Wages in mind. However, there are few aspects to note in such scenario.

As per the PF Act, the employer should not reduce the basic wages to avoid the burden of PF contribution. (Refer to the PF FAQs)

Secondly, if an employee’s basic wages + DA is Rs.15,000 or higher, the employer’s 12% contribution gets divided into two parts @ 8.33% of Rs. 15,000 contributed towards employee’s EPS account (i.e., Rs. 1,250 per month) and balance amount exceeding Rs. 1,250 per month is contributed to employee’s EPF account). - Refer to Contribution Rates.

Under EPF

  • The contributions are payable on maximum wage ceiling of Rs. 15000/-
  • The employee can pay at a higher rate and in such case employer is not under any obligation to pay at such higher rate.
  • To pay contribution on higher wages, a joint request from Employee and employer is required [Para 26(6) of EPF Scheme]. In such case employer has to pay administrative charges on the higher wages (wages above 15000/-).
  • For an International Worker, wage ceiling of 15000/- is not applicable.

Hope the above helps.

Regards,
Bhuvana Anand

3

Hello Gragi,

Answer is in your example only as you said, your company is having concept of keeping Rs. 15000/- ceiling for deducting PF, so if any employees whose Basic Salary is more than 15000/- then in that case you don’t have any problem and question doesn’t arises of making 50% or 70%.

If Basic pay is reduced then PF contribution will also reduced as per basic pay.

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4

From the narrow view of PF, it is possible. Consent of the employee should be taken as this will affect his leave encashment and gratuity.

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5

Dear Gargi

Yes it is possible since your company concept is PF maximum 1800/- so need not worry about 50% or 70%.You can change the basic and PF contribution can remain same as 1800/- since it is for 15000/-

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6

You can do it without any issue till the Basic is 15,000. If Basic goes below 15,000 then PF will be calculated accordingly.

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