As an employer, one of the most crucial aspects of your responsibilities is ensuring that your employees are covered under the right social security schemes. Among these, the Employees’ Provident Fund (EPF) is one of the most important. Let’s break down what PF means for your business, what you’re required to do, and why it matters!
This article covers the following
- What is a Provident Fund (PF)?
- When Does PF Apply to Your Establishment?
- High-Earning Employees – Are They Mandatory?
- Why is the ₹15,000 Limit There?
- How to Calculate PF Contributions?
- What About Contract Workers and Daily Wage Staff?
- What the Courts Say
- Why Should Employers Care?
- Let Legal Terminus Help You Stay Compliant!
1) What is a Provident Fund (PF)?
The Employees’ Provident Fund (EPF) is a mandatory social security scheme in India that helps employees save for their retirement and future needs. As an employer, you and your employees both contribute a portion of wages to this fund, creating a solid savings plan for their future.
2) When Does Provident Fund Apply to Your Establishment?
PF compliance is compulsory for any establishment with 20 or more employees. This includes:
- Permanent staff
- Temporary workers
- Contract workers hired through third-party contractors
Even if your business is small, if you have 20 or more total employees — including those from contractors — you’re legally required to register for PF and start contributing.
3) High-Earning Employees – Are They Mandatory?
There’s a common confusion around employees who earn more than ₹15,000/month (basic + DA):
- If they’re joining PF for the first time, PF is not mandatory for them. They’re known as “excluded employees.”
- But if they’ve been members of PF before (in a previous job), you must enroll them even if their salary exceeds ₹15,000.
Many employers choose to voluntarily include everyone in PF, even those above the ₹15,000 limit, as it’s a great way to support staff and keep them engaged.
4) Why is the ₹15,000 Limit There?
This wage ceiling is to ensure that social security coverage is mandatory for low- and middle-income workers. Employers can, however, provide PF coverage for employees earning above ₹15,000 as a valuable HR benefit.
5) How to Calculate PF Contributions?
As an employer, here’s how the contribution system works:
- Employee’s share: 12% of basic wages + dearness allowance
- Employer’s share: 12% too, but split into:
- 8.33% for the pension scheme
- 3.67% for the employee’s PF account
You also pay:
- 0.5% towards Employees’ Deposit Linked Insurance (EDLI)
- Small administrative charges (0.5% for EPF administration)
It’s important to calculate these contributions accurately and deposit them by the 15th of each month.
6) What About Contract Workers and Daily Wage Staff?
Your PF obligations extend beyond your permanent staff:
- Even if workers are employed through contractors, you’re considered the principal employer.
- You must ensure that PF contributions for these workers are correctly deducted and deposited.
This means you should:
- i) Check if the contractor has a valid PF registration
- ii) Ask for monthly proof of payment (like EPF challans and statements)
iii) Keep records of these documents for future audits
If a contractor fails to deposit PF, you (as the principal employer) are responsible for making good on those dues to the EPFO. This ensures that no worker is left out of this social security net.
7) What the Courts Say
The Supreme Court has consistently emphasized that:
- Contract workers and daily wagers must be included in PF coverage
- Allowances that are a regular part of salary must be included in the PF wage calculation
- Employers cannot avoid PF obligations by splitting wages into “allowances” that are in reality part of basic pay
8) Why Should Employers Care?
Beyond compliance, PF is a trusted way to support your workforce. It shows that you care about your employees’ well-being and future security. Many employees look at PF as a sign of stability and trust in a company.
Additionally, non-compliance can bring penalties — including interest, damages, and even prosecution. So, it’s both a legal and moral duty to get PF right!
9) Let Legal Terminus Help You Stay Compliant!
At Legal Terminus, we have a team of highly knowledgeable professionals who understand PF compliance inside and out. We offer complete PF solutions for businesses of all sizes — from registering with the EPFO and calculating monthly contributions to handling tricky contractor compliance and ensuring accurate record-keeping.
Let us help you build a compliant and caring workplace that your employees can trust!
Contact us today to learn more about our PF compliance services and how we can support your establishment.
Disclaimer:
This article is for general informational purposes only. While every effort has been made to ensure accuracy as of the date of publication, we are not responsible for any subsequent changes in law or interpretation. This article does not constitute legal advice, and professional consultation is recommended for specific scenarios.