Provident fund-What is salary for the purpose of calculating PF contribution
These days lot of establishments are recieving notices from PF Office penalising the employer for lesser contribution of PF. Salary for the purpose of PF means Basic+DA. Allowances like HRA, conveyance, medical allowance, mobile allowance are specifically excluded from the definition of salary. If there are any allowances which are given as say "Other allowances" , PF inspector may consider this as part of your basic and ask you to contribute 12% PF on basic+other allowances. Carefully design your salary structure specifying the various components and dont pay it as a lumpsum.
This issue is pertinent for all those employees drawing below Rs 6500 as basic+da. PF Inspector may consider the gross salary as salary for the purpose of PF. This may lead to increased employer and employee deductions alongwith interest and penalties , which may be a huge impact if there are many employees and the demand is raised for many years.
There are situations where employees left the job and PF officers demanded to pay extra PF. One should carefully design the salary structure to avoid any penalty or extra cost.
If employee is paid full without deducting correct amount, PF officers may demand the short deduction to be paid.
This happenes in practical scenerio.