EPFO Rules: The Employees Provident Fund Organisation (EPFO) makes it mandatory for all companies to sign up for its PF scheme in order to build a safe nest for workers after their retirement. For companies with 20 or more employees, the contribution must be 12 per cent of the basic salary.
As per PF rules, both employees and employers are required to pay a certain amount, in line with the employee’s salary, towards their provident fund. The amount is deducted from the basic salary of the employee, and the employer must match the amount as part of their contribution.
However, in your pay slip, you may see the employer contributing much less than you in your PF account. In this article, we explain why it happens and how employer contribution in PF account works.
How does PF employer contribution work?
Before explaining how employer contribution works in provident fund, it must be noted that EPF comprises three different schemes — retirement benefits part, EPS (pension) part, and EDLI (insurance) part.
1. Let us assume you contribute ₹2,000 from your salary to your PF account. Therefore, your employer will also have to contribute ₹2,000 towards the EPF scheme. The total contribution towards your EPF will therefore stand at ₹4,000 each month, on which you will earn an annual interest.
2. The employee and employer both contribute 12 per cent of the basic salary towards the EPF scheme.
3. While the entire contribution of the employee is directed towards the provident fund account, the employer is responsible for covering the other schemes of the EPF.
4. Here is a breakdown of the employer’s contribution towards EPF — 8.33 per cent of the employer’s component is distributed towards the Employees’ Pension Scheme (EPS, also known as EPF pension) and 3.67 per cent towards the Employees’ Provident Fund (EPF).
5. Therefore, if you are contributing ₹2,000 towards your PF account every month, your employer will contribute around ₹611 to PF and the rest to the EPS scheme.
You can check your own and your employer’s contribution towards EPF in in the EPFO member’s passbook.