Updating PF (Provident Fund) settings for a pay group

Modified on Thu, 28 Mar 2024 at 05:31 PM

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Provident Fund is one of the largest social security initiatives that are available to your employees.

TABLE OF CONTENTS

Is PF amount limited to statutory minimum for all the employees?
Employer Contribution
Other charges – EPF admin and EDLI charges
Additional Settings

Getting the PF settings right is important to align with your processes. You can configure the PF settings on Keka to ensure that you are compliant with statutory regulations. Let’s see how you can configure PF settings for a pay group.

To start editing the PF settings, navigate to Payroll (1)>> Settings (2).

In the Pay Groups tab (3), you will see the various pay groups that you have configured on Keka.

Select the pay group and click on the Configure icon (4).

On the Pay Group Configuration window, select the Contributions tab (5). Here you can see the various settings in brief. Click on the three dots (6) on this window and from the drop-down, select Update PF Settings (7).

In the Provident Fund (PF) Settings window, there are some important options to focus on.

On the top of the window, you can toggle PF on or off using the toggle button. This will enable or disable PF for the pay group.

Let’s look at the other options on this window that you can configure.

Is PF amount limited to statutory minimum for all the employees?

The employer and employee contribution towards PF is calculated as 12% of Basic + DA for any employee who earns below ₹ 15,000/-. For those who earn above ₹15,000, the minimum contribution is set at 12% of ₹ 15000 = ₹1,800/-

This option allows you to limit the PF contribution to the statutory minimum of ₹ 1,800 per month.

If you want to restrict the PF contribution to the statutory minimum, select the option Yes, Employee's PF amount will be limited to statutory minimum. If this option is selected, the employee and employer contributions will be calculated based on the statutory minimum value of ₹ 15,000/-.

If you want to calculate the employee’s PF contribution based on the actual Basic + DA, select option No, Employee's PF will be the percentage of basic beyond statutory minimum.

In this case, the employer contribution will remain at the amount dictated by the statutory minimum while the employee will contribute based on the actual amount of basic + DA they receive or as defined as per the salary structure.

You can also select the option that allows you to override this amount in the salary structure by using a formula for PF calculation when you are creating the salary structure. The value that is derived using this formula will be considered as the PF contribution of the employee in such cases.

You can select this option by selecting the checkbox Allow Overriding PF at salary structure level.

Employer Contribution

The next option to look at is employer contribution. You can choose if the employer contribution to PF is a part of the employee’s annual salary or not. This is relevant when organizations define a CTC which includes the employer contribution as well. You can choose to keep this separate from the annual salary or it could also be deducted from the annual salary of the employee.

If the employer PF contribution is not a part of the annual salary of the employee, select option No, Employer’s contribution of Provident Fund is paid by the employer, over and above the annual Salary of an employee.

When you select this option, you will also get the choice to limit the employer contribution to a maximum monthly amount. Enter the amount you want to limit to in the field that shows up when you select this option.

If the employer contribution is a part of the employee’s annual salary, select the option Yes, Employer’s contribution of Provident Fund forms a part (and is deducted) from annual salary of an employee.

You can also choose to hide the employer contribution amount from the pay slip. You can do this only if the employer’s PF contribution is a part of the employee’s annual salary. Select the checkbox Hide Employer’s contribution towards Provident Fund from the pay slip.

Other charges – EPF admin and EDLI charges

The next option relates to EPF administration charges and the EDLI charges that must be paid. You can define if these charges are a part of the employee’s annual salary or if it is over and above the employee’s salary. Select the relevant option depending on how your process works.

You can also choose to show these charges in the employee’s pay timeline. Select the Show other charges in employee pay timeline checkbox if you want the employees to view the charges paid. Unselect this checkbox if you do not want to show these charges to the employees.

If these charges are a part of the employee’s annual salary, you can choose the second option.

This gives you the additional option to choose if these charges are to be hidden on the pay slips that the employee receives each month.

Additional Settings

There are a few additional settings that you can configure which allow you more control over PF contribution calculations. Let us look at these additional options.

Do not adjust (reduce) special allowance in case PF contribution is impacted by LOP (Loss of Pay).

This option is applicable only when the Employer's PF contribution is a part of the gross salary of the employee and is hidden from the pay slip.

PF contributions from an employee for any month can be prorated to reflect the number of days that the employee has worked. So, if the employee joins the organization during the middle of the month and works for only 10 days, the PF contribution can be calculated for just those 10 days. Similarly, loss of pay (LOP) also impacts the calculation of PF contributions.

Let us take an example to illustrate this. Consider the employee’s salary breakup as follows

Basic Pay: INR 25,000/-

Special allowance INR 15,000/-

So the PF contribution for the employee, if they work for all the payable days in the month, would be 12% of the basic salary limited to INR 15,000 which would be INR 1800/-.

Say the employee has 10 LOPs for the month.

So the actual basic and special allowance for the employee for the month would be calculated as follows.

Basic/day= 25,000/30=833.33

Actual basic with 10 LOPs = 16,666.67

Special allowance/day = 500

Special allowance with LOPs=10,000/-

Employee PF calculation as calculated based on the formula= 12% of Basic + DA.

Since the Basic + Special allowance exceeds 15,000, this amount will be capped at 12% of 15,000 or INR 1800/-

PF calculated based on statutory minimum per day = 1800/30 =60

Actual PF calculations including LOPs based on statutory minimum = 1200

Difference between PF calculated from basic + Special allowance and based on statutory minimum = 1800-1200 = 600/-

This difference amount will be adjusted against the special allowance to make sure that the CTC promised to the employee is not affected. So, the special allowance in actuality would be 10,000-600= 9,400/-

So, the basic and the special allowance that the employee receives will be INR 16666.67/- and INR 9400/-. The PF contribution from the employee and the employer will be INR 1800/-.

If this option is enabled, the system will not reduce the special allowance with the difference but in this case, the CTC to the employee will be higher than what was promised.

In such a case, the PF contribution from both the employee and employer will be INR 1800/-. The basic and special allowance would be INR 16666.67/- and INR 10,000/-.

This corresponds to the contributions that the employee makes towards the Employees Pension Scheme (EPS) at a higher rate than the wage cap for pension which is currently set at INR 15,000/-

Employees contributing to the pension above the wage cap are currently required to contribute an additional 1.16% of basic towards EPS according to the EPFO regulations. Selecting this option will enable the option to deduct an additional 1.16% of their salaries towards the EPS scheme.

Limit PF exemption to 12% of Basic + DA

Selecting this will limit the tax exemption for PF contributions made by the employer will be limited to 12% of Basic + DA even when the actual contribution is being made at a higher rate.

Allow employees to contribute towards VPF

Employees have the option of contributing a higher amount to PF in the form of voluntary PF contributions or VPF. Selecting this option enables VPF for the pay group.

Allow admin to override PF Contribution, opt-out from PF, limit to statutory PF

If this option is selected, the admin will have the option to override the PF contribution values while running payroll or at an employee level. They can also choose if the employee should be opted out of PF as well as limit the contributions to the statutory minimum which is 12% of basic + DA considering a maximum of INR 15,000/- per month of basic + DA which would be at INR 1800/-.

Select the necessary settings from the available options and then click Update to save the new PF contribution settings.

Hope this helps you understand the various settings you have when it comes to managing PF contributions from the pay group. More questions? Do let us know. We will be happy to help you!