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PF Calculation explained with 5 easy rules

This blog is like Dhoom 2 to our blog post on the EPF Act and amendments (the sequel 🙂 ). Here we will be discussing 5 must know rules for EPF calculation. Like in the previous blog post, whether you’re a business owner, a CA or an employee who qualifies for the EPF Act, these 5 rules can be life-saving!

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We’ll be covering topics including:

  • PF Caclulation
  • 5 Rules
  • Working Examples

But first, a recap of the EPF Act.

The EPF Act consists of :

  • The Employee Provident Fund.
  • Pension Scheme of the employee.
  • The Employee Deposit Linked Insurance Scheme.

So all the deposits are made into three separate accounts – the EPF, EPS, and EDLI accounts.

EPF Calculation

The 5 Rules for EPF Calculation

RULE 1: Source of Contribution for EPF Calculation

This rule states that all the deposits made into the PF account are from two sources- the employer and the employee. The employee’s contribution is taken directly from his salary, while the employer provides the rest.

RULE 2: Matching Deposits

This rule states that the contribution of the employee to the EPF account must be equal to the sum of the contribution of the employer in both EPF and EPS accounts.

For example, if the employee deposits INR 500 in the EPF account, the employer must also deposit INR 500, divided between EPF and EPS accounts.

RULE 3: Extra Amount by Employer

The EDLI account and the EPF administrative charges are paid by the employer ONLY. Why? Well, he’s the employer, so he has to pay some extra money right?

RULE 4: PF Wages for EPF Calculation

The PF is a deduction, not on your whole salary, but on your (Basic pay + DA) only. This rule might be changed to include HRA in the future as well.

RULE 5: Wage Limit

As of September 2017, ONLY the employees with PF wages less than 15,000 are cover in the EPF Act. Once covered, even if their salary increases to beyond 15,000, the PF will still be calculated on INR 15,000.

Contribution Rates for EPF Calculation

The contribution rates are different for the employee and the employer. The employee has to pay 12% of his/her PF wages, while the employer has to pay 13.15% of the employee’s PF wages. All of the employee’s PF wages go to the EPF account, while the employer’s wages are split into 4 different accounts. The breakup is given below.

Note that the EPF (Employee) = EPF + EPS (Employer)

   EMPLOYEE———————————————-EMPLOYER——————————–
      Regular          Employees              12%            (EPF)    3.67%  (EPF)    8.33%      (EPS)     0.5%      (EDLI)          0.5%                                (EPF Admin Charges)**
       Some              Particular       Companies *            10%              (EPF)    1.67%      (EPF)    8.33%      (EPS)     0.5%      (EDLI)          0.5%                              (EPF Admin Charges)**
     Ages 58+            12%              (EPF)      12%        (EPF)        –      0.5%      (EDLI)         0.5%                               (EPF Admin Charges)**

All numbers are rounded off to the nearest real number., The Admin charges has been reduced from .65 to .5%

* The particular companies will be explained in the next section.

** The EPF administrative charges have to be paid by the company to the government.

  • If there is at least one employee in the company who is eligible for the EPF act, the charges have to be a minimum of INR 500. For example, if there are two employees who’s admin charges are INR 200 each, the total charge is INR 400, which is less than INR 500. Thus, the company has to pay INR 500 for admin charges.
  • However, if there is NO employee in the company who is registered in the EPF Act, therefore the admin charges are INR 75.

Which businesses have a 10% rate in EPF Calculation?

There are multiple cases where an establishment avails 10% rate:

  • Companies with less than 20 employees who claim voluntary coverage receive 10% rate. ( Not applicable now )
  • In fields of companies that have been declared ‘sick’ by the board of industries and financial reconstruction receive 10% rate.
  • Companies where the financial year’s loss is greater than its net worth receive 10% rate.
  • Jute, coir, beedi, brick, guar gum, etc. industries are liable to 10% rate.

A working example of EPF Calculation:

Assume an employee whose salary is Basic(10,000) + DA(2,000) + HRA(6,000) = 18,000. So, his PF wages will be INR 12,000.

Hence, he is eligible for the EPF act as 12,000 < 15,000.

Now, his PF breakup will be as follows:

      PF           WAGES  EMPLOYEE——————————-EMPLOYER———————————
   12,000          1,440           (EPF)      440        (EPF)     1000        (EPS)       60        (EDLI)            60                              (EPF Administrative              charges)

Here too, note that EPF (employee) = 1,440.

EPF (employer) + EPS(employer) = 1,000 + 440 = 1,440

Now, the employee’s total savings are INR 2,880 (24%), while the total PF contributions are INR 3,000 (25.00%).

This 24% saved by the employee has a very high interest rate of over 8%.

We genuinely hope you have learned something new from our blog, and stay tuned for more informative blog posts ?

P.I. Jain and Company serve more than 500 companies across India and helping them with their payroll processing needs and EPF consultancy. We have been providing excellent PF Consultancy for over 40 years with hundreds of clients, and we look to expand further all over India.

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