EPF Contribution based on gross salary – Decision of EPFO taken earlier this month likely to be reviewed

Early this month, Employees Provident Fund Organisation (EPFO) insisted employers coming under the purview of EPF to deduct employee contribution based on Gross Salary. (Get the news reported in Economic times in this regard) So far employers are deducting employee contribution based on the salary of employees after deducting allowances.

This instruction might reflect on the take home salary of and EPF covered employee.

However, as per the present news reported in various media, Government is to review the circular issued by EPFO for calculating employee portion of EPF contribution based on gross salary.

As per Government Sources, the Circular for insisting employers to calculate EPF contribution based on gross salary is in fact issued to safeguard employees who are receiving gross salary of Rs.6500 per month and lesser by insisting employers to contribute based on gross salary (employer contribution).

Times of India reports as follows:
It is not mandatory for those earning above Rs 6,500 per month to opt for the EPF, but once employees opt for EPF, there is no opting out of it till the amount is withdrawn in full. Many employers expressed reservations after TOI first reported it on Tuesday as the circular would impact their wage bills. Typically, high salaried employees in the private sector do not opt for EPF.

Employees have to contribute 12% of their basic wage towards PF and the amount is matched by their employers. The issue of employers shrinking the size of the basic wage and inflating allowances to reduce their PF burden has long plagued the EPFO.

Both employers and trade unions objected after TOI first reported about it on Tuesday. “We have sent a letter to the labour ministry objecting to certain provisions in the circular,” D L Sachdev, AITUC national secretary and trade union representative in the Central Board of Trustees of the EPFO, said. The consent of the CBT was not taken before issuing the circular, Sachdev added.

Besides, in a note, consulting firm PricewaterhouseCoopers pointed to conflicting judgments on the subject. “Recently, the Madhya Pradesh high court ruled that allowances that are given universally, necessarily and ordinarily to all employees form part of the basic salary. The judgment has been challenged in the Supreme Court and the matter is yet to be decided. The decision of the SC would perhaps provide a direction in the matter but till then, this circular is a wake-up call for the employers to review their position in relation to compensation structure,” it said.
Source: Times of India