Here I am discussing about the practical section of EPF & Miscellanious Act 1952.EPF contribution calculation,ceiling limit,base of calculation,rate of contribution, exceptions & important points to be considered while doing a payroll linked with this Act.
EPF is expanded as Employees provident fund.In 1952 4th March government has passed The Employees Provident Fund Act with the object of ensure the employee better future on his retirement and of his dependents on his death.The organisation created for governing such rules is called EPFO,The Employees Provident Fund Organisation.
Applicability of EPF
- The act is applicable to whole India except the state of Jammu&Kashmir.
- To every establishment which is a factory engaged in any Industry specified in Schedule I and in which 20 or more person are employed.
- To any other establishment employing 20 or more persons or class of such establishment,Which the central government by notification,may specify in this behalf.
- Cinema Theatres employing 5 or more persons
- Any employer who wish to give such benefits to his employee can also join the scheme voluntarily
The Act does not applies to
Section 16 of EPF Act states that following establishment will not covered under this Scheme.
- Co-operative societies registered under co-operative societies act 1912 employing less than 50 working without power.
- Central or state government establishment or establishment set up under any Central, Provincial or State Act, providing such equivalent benefit like contributory provident fund or old age pension.
EPF Ceiling limit
It is not necessary to bring all employees under the scheme.But it is mandatory to bring such employees who earn 15000 per month as BASIC + DA+ Retaining Allowance If Any. The new ceiling limit was introduced from 1st September 2014(01-09-2014). Earlier it was 6500 from 01-06-2001 to 31-08-2014.
However, If employer wish to provide contribution for employees whose basic+da is greater than 15000, then he can enroll such employees by submitting a joint request of both employer and employee to the EPFO department (Section 26(6) of EPF Scheme). However there is no statutory obligation arises to the employer for such cases. It is a voluntary action.
But for a international employee. EPF should be applicable irrespective of ceiling Limit 15000.
EPF Contribution on Total salary or Basic salary or Basic + DA?
Still confusions are going on whether the EPF is calculated on whole salary which includes allowances or only Basic+ DA only?. Lets have a look at the section.
Section 2b of the PF Act. ( This section talking about What is basic wages?)
2(b) “basic wages” means all emoluments which are earned by an employee while on duty or on leave or on holidays with wages in either case in accordance with the terms of the contract of employment and which are paid or payable in cash to him, but does not include-
(i) the cash value of any food concession;
(ii) any dearness allowance that is to say, all cash payments by whatever name called paid to an employee on account of a rise in the cost of living, house-rent allowance, overtime allowance, bonus, commission or any other similar allowance payable to the employee in respect of his employment or of work done in such employment;
(iii) any presents made by the employer;
Section 6 of the PF Act ( This section talking about Contribution)
Contributions and matters which may be provided for in Schemes. – The contribution which shall be paid by the employer to the Fund shall be ten percent. Of the basic wages, dearness allowance and retaining allowance, if any, for the time being payable to each of the employees whether employed by him directly or by or through a contractor, and the employee‟s contribution shall be equal to the contribution payable by the employer in respect of him and may, if any employee so desires, be an amount exceeding ten percent of his basic wages, dearness allowance and retaining allowance if any, subject to the condition that the employer shall not be under an obligation to pay any contribution over and above his contribution payable under this section:
Provided that in its application to any establishment or class of establishments which the Central Government, after making such inquiry as it deems fit, may, by notification in the Official Gazette specify, this section shall be subject to the modification that for the words “ten percent”, at both the places where they occur, the words “12 percent” shall be substituted:
Explanation I – For the purposes of this section dearness allowance shall be deemed to include also the cash value of any food concession allowed to the employee.
Explanation II – For the purposes of this section, “retaining allowance” means allowance payable for the time being to an employee of any factory or other establishment during any period in which the establishment is not working, for retaining his services.
Section2(b),is talking about what is basic wages and Section 6 talking about contribution. Hence
EPF Contribution is calculated on
BASIC Salary + Dearness Allowance( DA) + Retaining Allowance If Any
Since house-rent allowance, overtime allowance, bonus, commission or any other similar allowance does not included as basic salary under section 2(b).These allowances need not be included in EPF contribution calculation.
EPF Pension or EPS-Employees Pension Scheme.
Employees pension scheme was introduced in the year 1995 in exercise of the powers conferred by section 6A of the Employees’ Provident fund and miscellaneous provisions Act 1952 for the benefit of retired employees through out the country.
It gives the financial security of every retired employee covered under the scheme or their family members on his death .The contribution towards EPS is made by employer and government. An employer should contribute 12% of under Section 6 of the Employees Provident Fund Act. out of which 8.33% represent the contribution towards EPS. and government is contributing 1.16% subject to a marginal limit of 180/month/employee.
EDLI-Employees Deposit Linked Insurance Scheme
EDLI is the short form of Employees deposit linked insurance scheme. It gives insurance coverage subject to a maximum amount of six lakh (600000) .The coverage was increased from 3.6 lakh (360000) in the event of natural death,Illness & accident.The scheme is applicable to all establishment covered under EPF Act 1952.
The funding of EDLI or contribution towards EDLI is done by employer on behalf of his employee apart from EPF & EPS contribution.
The prevailing rate of EPF ,EPS EDLI & Admin charges contribution is as follows.
Update: The EPFO has revised administrative charges & Edli Admin charges with effect from 01-04-2017. The Existing rate of EPF admin charge is reduced to 0.65 from 0.85. And employers shall not be paid any EDLI admin charges w.e.f 01-04-2017.
Special EPF rate for –
- Any establishment in which less than 20 employees are employed.
- Any sick industrial company and which has been declared as such by the Board for Industrial and Financial Reconstruction.
- Any establishment which has at the end of any financial year, accumulated losses equal to or exceeding its entire net worth and.
- Any establishment in following industries:- (a) Jute (b) Beedi (c) Brick ( d) Coir and (e) Guar gum Factories.
Here is the rate table for the above industries
Very important points to be noted for contribution calculation.
- The Employee contribution towards EPF, EPS & EDLI should be rounded up to the nearest upper value.
- EPF Administration charges is rounded up to the nearest big value. Employer should remit minimum 500 towards EPF administration charges/ Month in case total calculated of all employees is less than 500 in a month.
- A reduction is available in case of non-functioning organisations,ie; the prevailing month has no contributory members, the minimum administrative charges will be 75.
Pension contribution is not required to deduct from employee in case
- When an employee crosses 58 years of age and is in service (EPS members ceases on completion of 58 years).
- When an EPS pensioner is drawing Reduced Pension and re-joins as an employee.
Charges to be paid by All exempted Organisations
- EPF inspection charges to be paid at the rate of 0.18% or a minimum of 5
How to calculate EPF,EPS,EDLI,Admin charges contribution.
Lets learn how to calculate EPF,EPS & EDLI contribution on various scenarios like employees covered under the scheme, employees joined in the scheme under voluntary enrollment by employer etc.
PF Calculation of Employees getting less than 15000
Consider an employee is getting 10500/Month .He is covered under EPF scheme. and his salary is structured as follows.
Basic 6300 + DA 2400 + HRA 1500 + Uniform Allowance 300 = Total 10500
The contribution calculated as follows.
As explained earlier in this article, Basic & DA is considered for the calculation & HRA uniform allowance is not considered for contribution calculation. Hence PF Gross Salary is 6300+2400=8700. The Contribution calculated on chargeable salary is as follows.
- The contribution of EPF ,EPS & EDLI is rounded individually, That is each employees contribution is rounded, Rounding up is always recommended.
- The EPF Admin charges rounded on total of all employees contribution subject to a minimum of 500 .There is no EDLI Admin Charges.
Calculation of EPF above the ceiling limit of 15000
Any organisation is desirous to give benefit to its employees whose salary is above ceiling of 15000.
Example: An employee is getting 20000 /Month,The break up is as follows.
BASIC 10000+ DA 7000+ HRA 2000+ Conveyance Allowance 1000= 20000 EPF Gross = 17000
In this case we can calculate the EPF contribution in the following 3 methods.
In this method employee & employer is contributing on Total Basic of 17000.
Note: EPS & EDLI cannot be calculated above the ceiling. the calculation is as follows.
However there is a confusion in the calculation EPF & EPS. EPS must be on 15000 maximum as per rule. Then how to calculate contribution?
EPS share is always fixed as 15000 x 8.33% =1249.5 rounded up to 1250.
EPF is calculated as 17000 x 12 % = 2040 – (EPS 1250) = 790
The Excess Amount in EPS is added to EPF Contribution
In this method Employer share is calculated on ceiling limit 15000 where as employee share is calculated on total of 17000.
Both Employee & Employer share is calculated on ceiling limit 15000
Account Number for EPF contribution deposit.
The contribution deducted from employee and by employer should be deposited into various account provided by department. These account number is specified in the EPF deposit challan. below is a table where EPF is to be deposited.
Here I am concluding my research & opinion based on my experience, You can comment, agree & disagree on my views regarding the practical area of Employing provident fund Act.