Lower PF contribution not mandatory – EPFO clarifies on CTC
The government notified the new rules on lower contribution towards the employees’ provident fund (EPF) by employer and employee for the next three months on 18 May. The Employees’ Provident Fund Organization (EPFO) came out with detailed FAQs (frequently asked questions) on 20 May to provide clarity on the statutory reduction on PF contributions.
As per the FAQs, the lower contribution is not mandatory for both the employer and the employee. Apart from this, EPFO has also clarified that those employers who are following the cost-to-company (CTC) model will have to compensate their employees by paying an amount equivalent to 2% contribution if they are opting for a reduced contribution of 10% instead of 12%. Here are some of the key questions answered in the FAQs that you must know.
Can I continue with 12% EPF contribution?
In order to provide some liquidity support to both employers and employees facing cash crunch due to the covid-19 crisis, the government allowed reducing the statutory PF contribution from 12% to 10% each for three months—May, June and July.
As per the FAQs, it is not compulsory for the employer and the employee to opt for lower contribution. “The reduced rate of contribution (10%) is the minimum rate of contribution during the period of the package. The employer and employee or both can contribute at a higher rate also,” the FAQs released by EPFO said. For example, if your basic plus dearness allowance was ₹10,000, then you and your employer were contributing ₹1,200 each (that is 12%). Now both of you can contribute ₹1,000 (that is 10%) per month. So, if you and your employer together were contributing ₹2,400 per month, now both of you can contribute ₹2,000 together.
“This means that employers and employees can opt for various combinations such as both employer and employee can opt for a lower contribution of 10% or both can continue with 12% contribution or employer can opt for 10% contribution while an employee can continue to contribute 12% or the employer can contribute 12% while the employee can opt for a lower contribution of 10%. The change in in-hand salary of the employee will depend on the combination opted for,” said Saraswathi Kasturirangan, Partner at Deloitte India.
Many of the employers are communicating with the employees about the pros and cons of the various options to help them choose. You can check with your employer for the details on the same…Read more>>