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      PF Contribution Breakup: Employer and Employee

      • 5 min read
      • Last Modified Date: March 5, 2024
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      What is the PF Contribution Breakup for employer and employee? The Employees’ Provident Fund (EPF) is one of the most popular investment options for salaried workers in India. It offers long-term financial stability and functions as a retirement safety net. Both the employer and the employee are required to contribute to the EPF fund, each contributing 12% of the employee’s base pay. The EPFO announced an interest rate of 8.5% for FY20, but the actual returns on EPF investments can vary from 4.5% to 6.6%. Additionally, PF trusts are not required to match the declared interest rate. 

      Experts have suggested unitization as a solution to this problem by transferring the risk to subscribers. Employees who are aware of the PF contribution breakup can make wise investment choices and better plans for the future. We will examine the specifics of the PF contribution breakup and how they impact the overall returns on EPF investments in this article.

      Understanding the PF Contribution Breakup: Employer and Employee Features

      An important financial plan that guarantees employees’ long-term savings is the Employee Provident Fund (EPF). Government-sponsored program with employer and employee contributions to the fund.

      Employer Contribution

      The employer contribution rate is fixed at 12 percent. The Employees’ Pension Scheme (EPS) receives 8.33 percent of this, and the Employees’ Provident Fund (EPF) receives 3.67 percent. The Employees’ Deposit Linked Insurance Scheme (EDLI), which provides insurance coverage for the employees in case of any unforeseen circumstances, is something that the employer is also required to contribute to. This additional 0.5 percent is important to note. The administration costs for EDLI and EPF, which are 1.1% and 0.01 percent, respectively, must also be covered by the employer. A total of 13.61 percent of the employee’s salary must be contributed by the employer to the plan.

      Exceptions to Employer Contribution

      The employer’s contribution rate could, however, be lowered in some circumstances to 10%. 

      This is relevant for:

      1. Organizations or businesses with a maximum of 19 employees.
      2. The Board for Industrial and Financial Reconstruction (BIFR) has categorized certain industries as “ill.”
      3. Organizations that experience significant annual losses in comparison to their net worth.
      4. Industries such as coir, guar gum, beedi, brick, and jute.
      5. Organizations with a salary limit of Rs. 6,500.

      Employee Contribution

      The percentage of the employee’s salary that must be contributed is set at 12 percent. The employee’s provident fund will receive all of this money. The worker has the option of voluntarily making additional contributions to the fund.

      Employee pension fund contributions are a crucial form of savings. With some exceptions, employers are required to contribute 13.61 percent of the employee’s income. Employees are required to contribute 12% of their salaries to the fund in the meantime. To make wise financial decisions, it is crucial to comprehend how EPF contributions are divided up.

      PF Contribution Breakup for Employer: Understanding the Details

      Employers and employees are both required to make contributions to the Employees Provident Fund Scheme, which provides retirement benefits. 

      A complete breakdown of the employer contribution is provided below:

      Minimum Contribution: Employers must contribute a minimum of 12% of the employee’s basic salary. Even if the worker’s base pay is less than 15,000 rupees, this contribution must be at least 1,800 rupees each month. Employers may choose to make voluntary additional contributions above the required minimum.

      EPF Contributions: 

      The Employees’ Provident Fund (EPF) receives 3.67% of the contribution, and the Employees Pension Scheme (EPS) receives 8.33%. If the employee’s salary is Rs. 15,000 or less, both the employer and the employee are required to make contributions to the EPF. Both parties must submit a joint request if the employer wants to make a larger contribution. If the employer contributes more than is required, administrative fees will also be charged. If the employer contributes more than the required minimum, they are not obligated to pay a higher rate.

      EPS Contributions: 

      The employee does not make EPS contributions; they are entirely the responsibility of the employer. 8.33% of the employee’s salary must be contributed by the employer to the EPS. However, there is no EPS contribution necessary if a worker remains employed or returns to service after turning 58 and drawing a Reduced Pension. The 8.33% employer pension contribution is instead transferred to the EPF. A member cannot decline the pension contribution on the grounds that they have not accrued ten years of service if they join after age 50 and are not pensioners.

      EDLI Contribution: 

      The Employee’s Deposit Linked Insurance Scheme (EDLI) requires employers to make additional contributions. The employer must contribute to EDLI even if the employee’s salary is higher than Rs. 15,000 as long as the PF contribution is made. Contributions must be rounded up to the nearest rupee, and the maximum wage ceiling of Rs.15,000 is not applicable for international workers.

      Making the most of the retirement benefit plan requires that you comprehend these PF Employer Contribution Breakup specifics.

      Bottom Line

      Finally, it should be noted that the Employee Provident Fund (EPF) is a crucial part of Indian employee benefits. Understanding the different facets of EPF, such as the contribution breakdown and the rules and regulations attached to it, is crucial for employers. By doing this, you can make sure that you are following the law and give your workers a beneficial retirement benefit.

      Assetmonk is aware of the significance of EPF and its role in ensuring employees have a better financial future. Our platform for real estate investments provides investment choices that can supplement EPF and assist people in creating a diversified portfolio for long-term wealth creation. We think it’s important to give our clients the tools they need to make wise investment choices and reach their financial objectives.

      PF Contribution Breakup: Employer and Employee FAQs

      What is the minimum employer contribution to the Employees Provident Fund (EPF) in India?

      12 percent of Rs. 15,000 is the minimum contribution that the employer is required to make. This implies that each month, Rs. 1,800 must be contributed to the plan by both the employer and the employee.

      Can the employer voluntarily contribute more than the minimum amount to the EPF?

      Yes, the employer may voluntarily contribute more than the required minimum of 12 percent of Rs. 15,000 if they so choose. However, the additional contribution made by the employer is not required to be matched by the employee.

      Is the EPF contribution rate the same for all organizations?

      No, the EPF contribution rate is 10% for businesses with a maximum of 19 employees, for sectors identified by the Board for Industrial and Financial Reconstruction (BIFR) as being in financial distress, for businesses that experience sizable annual losses relative to their net worth, and for sectors like coir, guar gum, beedi, brick, and jute.

      What is the maximum wage limit for EPF contributions in India? 

      India has a 15,000 rupee wage ceiling for EPF contributions. However, the employer is not required to contribute at a higher rate if they pay more than Rs. 15,000; for a higher contribution, both the employer and the employee must make a joint request.

      What is the EDLI contribution, and is it mandatory? 

      Employee Deposit Linked Insurance, or EDLI, is a type of life insurance that is offered to employees as a benefit for their EPF contributions. Even if the maximum pay cap for EPF is exceeded, the employer must make a 0.5% additional contribution to EDLI. As long as the individual pays PF contributions and is employed, a contribution to EDLI is required.

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