Provident funds

Provident fund is governed by the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF & MP Act 1952).

It extends to whole of India except the state of Jammu and Kashmir. It is applicable to every establishment which is a factory engaged in any industry specified in Schedule I and in which 20 or more persons are employed; and such other class of establishments which the Central Government may, by notification in the Official Gazette, specify in this behalf.

An establishment to which this Act applies shall continue to be governed by this Act notwithstanding that the number of persons employed therein at any time falls below twenty.

• Eligible to become memberAll employees are eligible for becoming the member of PF who is employed in an establishment (includes employees employed through contractors, daily rated, piece rated, temporary, casual etc.).

“Excluded employees” need not be enrolled as PF members.

Excluded employees are:

a) Employee who drawing the wages (Basic + DA + Cash value of food concession) above Rs.15000/-as on the date of joining the establishment.(If the ‘wages’ of an employee is increased beyond Rs.15000 during the course of employment and after becoming a member of Employees’ Provident Fund, such employees are not to be treated as excluded employees. In such cases his contribution may be restricted to his wages up-to Rs.15000/-.

b) Employees whose Employees’ Provident Fund Accounts were once fully settled after attaining 55 years of Age or on permanent settlement abroad.

• Employees drawing wages above Rs.15000/- can also become a member of the Fund, if the employer and employee give a ‘joint declaration’ to the Regional Provident Fund Commissioner.
• Employees may voluntarily opt to contribute beyond the wage ceiling of Rs.15,000/- (i.e. up-to his ‘wages’). In such cases, an employer is not required to pay his own share of contribution above the wage ceiling of Rs.15,000/-.

Contribution

• The contribution which shall be paid by the employer to the Provident fund shall be 12% / 10% * 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 contactor) and the employee’s contribution shall be equal to the contribution payable by the employer.

*10 % in case of certain establishments (Jute, Beedi, Bricks, Coir industry, Gaur gum industries) and also to any establishment which employs less than 20 persons.

• 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 food concession;

(ii) Any DA, HRA, overtime allowance, bonus, commission or any other similar allowance payable to the employee;

(iii) any presents/gifts made by the employer;

• Employer shall pay the amount of contribution within 15 days of the close of every month pay to the PF Authority which is authorized for collection on account of contributions and administrative charge.
• Interest on PF contribution @8.50 % PA for the FY 2019-20.

For better understanding

We can say, Gross wages – [Canteen charges – DA – HRA -Overtime allowance – bonus- commission – any gift from employer] = Basic Wages

While for computing the amount on which PF calculated:

Basic Wages + [DA] + [Retaining allowances (allowances paid to all employees)]