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Ceiling Wage Limit: Cap on PF Contribution

May 31, 2022
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By Rupin Chopra and Apalka Bareja

Introduction

A Provident Fund is an investment jointly established by the employer and the employee to serve as a long-term savings to support the employee upon retirement. All employees earning a salary are eligible for Employee Provident Fund (EPF). However, it is compulsory for employees earning less than or up to Rs. 15,000 to register for EPF. For employees earning more than Rs. 15,000, they may voluntarily register themselves under the EPF Scheme to avail benefits of the Provident Fund. In India, Provident Fund is regulated by the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 and the EPF Scheme 1952 (framed by the Central Government in exercise of the powers conferred under the Act).

The Central Government has framed an Employee’s Provident fund Scheme, for such establishments or class of establishments to which the Scheme shall apply and therefore a Fund shall be established after the Scheme is framed in accordance with the provisions of the Act.

The Act applies to:

  1. Every establishment which is a factory engaged in any industry and in which twenty or more persons are employed.
  2. Any other establishment employing twenty or more persons or such class of establishments as specified by the Central Government.

The Contribution which shall be made by the employer to the Fund shall be twelve  per cent (12%) of the basic wages, dearness allowance and retaining allowance if any, for the time being payable to the employees which include employees employed by him directly or through contractor. The contribution by the employee shall be equal to the contribution of the employer.

The employee, if wishes to contribute more in excess of the twelve per cent (12%) of the basic pay, dearness allowance and retaining allowance may contribute excess to the Provident Fund subject to the condition that the employer is not under any obligation to pay over and above his contribution.

As per Paragraph 26 of the EPF Scheme, every employee employed in or in connection with the work or factory or other establishment to which the Scheme applies, other than excluded employee, shall be entitled and required to become a member of the Fund. The employee shall be entitled to becoming member of the provident fund if he or she is a subscriber to the fund maintained in respect of the factory or establishment or any other establishment under the same employer.

The employee and employer have to contribute in equal proportions to the fund. The employer, however, is only obligated to contribute up to the ceiling wage limit which was Rs. 6,500 until August 31, 2014. The Employees Provident Organisation (Ministry of Labour and Employment, Government of India), vide notification dated August 22, 2014 has increased the Provident Fund Limit from Rs. 6,500 to Rs. 15,000 with effect from September 1, 2014.

Accordingly, sub-paragraph 6 of Paragraph 26, EPF Scheme provides that such employee having a pay of Rs 15,000 per month shall be enrolled as a member of the Fund and be allowed to contribute to the fund and the employer shall comply with the statutory provisions in respect of such employee.

As per the proviso to Paragraph 26A, where the monthly pay of such a member (employee) of the Fund exceeds Rs. 15,000, the contribution payable by him and in respect of him by the employer shall be limited to the amounts payable on a monthly pay of Rs. 15,000.

CHANGE OF WAGE LIMIT[1]

Period Wage limit per month
01.11.1952 to 31.05.1957 Rs. 300/-
01.06.1957 to 30.12.1962 Rs. 500/-
31.12.1962 to 10.12.1976 Rs. 1,000/-
11.12.1976 to 31.08.1985 Rs. 1,600/-
01.09.1985 to 31.10.1990 Rs. 2,500/-
01.11.1990 to 30.09.1994 Rs. 3,500/-
01.10.1994 to 31.05.2001 Rs. 5,000/-
01.06.2001 to 31.08.2014 Rs. 6,500/-
01.09.2014 onwards Rs. 15,000/-

 

Conclusion

An employer in respect of the employee who is a member of the Fund, shall be limited to contribute to the Provident Fund only up to the amount payable on a monthly pay of Rs. 15,000 including dearness allowance, retaining allowance (if any) and cash value of food concession.

The employer cannot be compelled to contribute the amount in excess of the statutory liability[2] i.e. up to the amount payable on monthly pay of Rs. 15,000 including dearness allowance and retaining allowance to the Provident Fund. The statutory limit of Rs 15,000 therefore serves as a cap on the contribution to the Provident Fund by the employer.

[1] https://www.epfindia.gov.in/site_docs/PDFs/MiscPDFs/WageCeiling.pdf

[2] Marathwada Gramin Bank Karamchari Sangathana & Anr. Vs. Management of Marathwada Gramin Bank &Ors. (2011 (9) SCC 620)

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