EPF Contribution Increased From Rs 780 - Why?

Many of my friends have mentioned about their PF contribution changing from Rs 780 to Rs 1800 from September 2014 onwards (without any salary revision / increase) and have been wondering about the cause for this.

The increased EPF contribution is a result of EPFO decision to raise the PF wage ceiling to Rs 15,000 from Rs 6,500.

The details can be found in my previous article. This decision took effect from September 1st, 2014 onwards. To understand it better, we need to know the usual pattern of EPF contributions -

  1. Most common pattern is that employee contributes 12% of salary towards EPF and employer matches it.

  2. Another pattern is that employer decides to use the EPFO limit of wage ceiling for the calculation of PF contribution irrespective of employee salary. This allows the employer to give more take home salary to employee while keeping the same CTC. But it comes at the cost of less accumulations in employee's PF account.

So if a company is using the 2nd approach, the PF contribution is bound to change because the wage ceiling has been changed to Rs 15,000 from Rs 6,500. PF contribution in 2nd approach = 12% of wage ceiling
Previously it was - 12% of 6500 = Rs 780
Now it has become - 12% of 15000 = Rs 1800

Category: finance