Despite the EPFO declaring an 8.5% interest rate for FY20, these EPFs offer yields ranging from 4.5% to 6.6% and have exempted PF trusts to match. Experts proposed transferring risk to subscribers rather than provident funds as a remedy to this mismatch through unitisation.
PF Contribution Break Up
Employees’ Provident Fund (EPF) is one of India’s most popular investing choices. Both the employer and the employee pay 12% of the employee’s basic salary to the fund in order to build a corpus for the future.
Features of Breakup of EPF Contribution
- Employer contribution of 12 percent comprises 3.67 percent EPF and 8.33 percent EPS.
- The 10 percent EPF contribution is applicable for businesses with 20 or fewer employees/organizations with losses more than or equal to the net worth (at the end of the fiscal year)/organizations declared ill by the Board for Industrial and Financial Reconstruction.
- The employer’s total contribution is allocated as 8.33 percent to the Employees’ Pension Scheme and 3.67 percent to the Employees’ Provident Fund.
- The employee’s contribution is entirely directed into the employee’s provident fund.
- Aside from the above-mentioned contributions, the employer must contribute an extra 0.5 percent to EDLI.
- The employer must also bear some administration fees for EDLI and EPF, which are 1.1 percent and 0.01 percent, respectively. This means that the employer must contribute a total of 13.61 percent of the employee’s income to the plan.
PF Contribution Breakup of Employee
In general, the employee contribution rate is set at 12 percent. However, the rate is set at 10% for the organizations listed below:
- Organizations or businesses with a maximum of 19 employees.
- The BIFR has classified some industries to be ill.
- Organizations that experience a significant annual loss in comparison to their net worth.
- Industries such as coir, guar gum, beedi, brick, and jute.
- Organizations with a salary limit of Rs. 6,500.
PF Employer Contribution Breakup
The minimum amount of contribution that the employer must make is fixed at 12 percent of Rs. 15,000 (although they can voluntarily contribute more). This equates to Rs. 1,800 each month. This means that both the employer and the employee must contribute Rs. 1,800 each month to this plan. Initially, this sum was fixed at 12 percent of Rs. 6,500, which equated to Rs. 780 in contributions from both the employer and the employee.
Both parties’ contributions are deposited in the EPFO (Employees Provident Fund Organisation).
This is a long-term investment fund for participants that enables them to live independently after retirement.
| EPF Contributions: |
- Contributions are required if the maximum wage is Rs.15,000.
- If the employer pays more, the employer is not required to pay a higher rate.
- To make a higher contribution, both the employer and the employee must make a joint request. Administrative fees apply if the employer makes a larger contribution.
- For international workers, the maximum wage ceiling of Rs.15,000 does not apply.
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| EPS Contributions: |
- The employee is not required to contribute to EPS; only the employer is required to contribute to EPS.
- When an individual reaches the age of 58 and remains in service, or when the individual re-joins as an employee after drawing a Reduced Pension, no EPS contribution is required. In both cases, the employer’s pension contribution of 8.33 percent goes to PF.
- The higher wage ceiling of Rs.15,000 is no longer applicable to international workers as of September 11, 2010.
- If a member joins after the age of 50 and is not a pensioner, he or she will not be able to refuse the pension contribution on the grounds that he or she will not complete the required ten years of service. However, until he or she becomes a member, he or she is covered by social security.
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| EDLI Contribution: |
- Contributions must be made even if the contribution to PF is made on higher salaries if the maximum pay cap is Rs.15,000.
- Donations are always rounded up to the next rupee.
- Even if the individual reaches the age of 58 and does not make a pension payment, and EDLI contribution must be made. Contribution to EDLI is made as long as the person contributes to PF and is employed.
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Breakup of EPF Contrinution – FAQ
Q1. What are the procedures for recovering the PF payment from a defaulting employer?
Receipt of debts from debtors, Employer Arrest and Detention Prosecution under Section 14 of the EPF and MP Act of 1952, attachment of bank accounts, attachment and sale of properties, action under Sections 406/409 of the Indian Penal Code and Section 110 of the Criminal Procedure Code
Q2. Is it legal for companies to deduct their portion of contributions from their workers’ wages?
No, employers are not permitted to deduct their portion of contributions from employee pay. It is a criminal offense to make such a deduction.
Q3. Can an employee contribute to EPF after leaving the company?
No, the employee cannot contribute to EPF unless both the member’s and the employer’s contributions are matched.
Q4. How can I figure out what my employer’s EPF contribution is?
– If you are a guy, you must donate 10% or 12% of your basic wage.
– If you are a new female employee, it is 8% of your base pay for the first three years. Following that, it will be 10% or 12% of your base pay.
– EPF contributions must be made by your employer in the amount of 10% or 12% of your basic pay.
Q5. Who should an employee contact if he or she is denied PF membership?
If his or her company fails to offer membership, the employee may contact the Regional Provident Fund Commissioner at the local PF office.