How much is the employer's contribution in EPF ?
Until recently, I was under the impression that employer contributes an amount equal to the employee's contribution in EPF. That's what most of us think, right? But its not true in every case. It depends on the employee's basic salary and the company's policy on EPF. I have summarized here the different cases and options -
Case 1 : Employee salary (basic + DA) less than 15000 (Rs 6500 before Sep 2014) It is mandatory for the employer (and employee) to contribute 12% of salary to EPF.
Case 2 : Employee salary (basic + DA) greater than 15000 For employer contribution, company can decide to choose from one of the following options depending upon their company policy on EPF
- (Option 1) Contribute 12% of salary
- (Option 2) Contribute 12% of Rs 15000/- , i.e., Rs 1800/- pm
- (Option 3) Not contribute at all
Option 1 is considered as the best practice and a lot of well established big firms take this route. Option 2 is considered better than option 3 and there are still many firms which take this option. Option 3 (not contributing at all) is not considered good (although its not illegal) and not many companies take this route. For eg., in my first job the company was contributing as in option 1 while in the next job the company was contributing as in option 2.
So we see that there are many cases where employer's contribution would not be equal to employee's contribution. In fact, employee can opt to contribute more than 12% and the employer is not required to match that amount.
Question: I know that me and my employer both contribute 12% of my salary to EPF but there is a difference of amount in employee share and employer share. Why?
Ans: While the employee contribution to provident fund is invested solely in the PF account, the contribution made by the employer is bifurcated into 2 different accounts – the Employee Provident Fund and Employee Pension Scheme. Out of the employer's 12%, 8.33% goes in Employee Pension Scheme subject to a maximum of Rs 1250/- (Rs 541 before Sep 2014) and the remaining 3.67% goes in EPF. For details on this see my previous post.
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