EPF Compliance for Businesses in India
The Employees' Provident Fund (EPF) is a mandatory savings scheme by the Government of India designed to provide financial security and retirement benefits to employees.
In this scheme, both the employee and employer contribute a percentage of the employee's salary to the EPF account. Over the years, these contributions accumulate, creating a significant retirement fund for the employee. Here are the key points about the EPF scheme.
To run a successful business in India, you must follow the government's payroll laws. These laws ensure employees are paid properly and receive social security benefits. One important requirement is the Employees' Provident Fund (EPF), which organizations must comply with.
The EPF is crucial for employee benefits. From April 2022 to September 2022, 8.7 million EPF accounts were created, a significant increase from the 6.1 million accounts registered in the 2018-2019 fiscal year. However, many reputed organizations have failed to comply with EPF laws in recent years, facing heavy penalties. To avoid these issues, businesses need to understand the basic EPF concepts, which are often scattered across various sources.
What is the Employees' Provident Fund (EPF) Scheme?
The EPF is a popular retirement savings scheme for salaried individuals in India. Its main goal is to provide social security by helping employees save part of their salary for retirement.
Here’s how it works:
Both employees and employers contribute to the EPF each month.
The fund earns a fixed interest rate.
Employees can use the accumulated funds when they retire, resign, or during emergencies.
The EPF was introduced in 1952 under the Employees' Provident Funds & Miscellaneous Provisions Act. This Act also includes the Employees' Pension Scheme (EPS), 1995, and the Employees' Deposit Linked Insurance (EDLI), 1976. All three schemes are managed by the Employees' Provident Fund Organisation (EPFO), which is overseen by the Ministry of Labour and Employment.
Latest EPF Regulations
Interest Rate: The government has set the EPF interest rate at 8.25% for the 2023-2024 fiscal year.
Supreme Court Verdict: The Supreme Court of India now allows EPS members to contribute 8.33% of their actual salaries instead of the previous cap of ₹15,000 per month. This change will help employees increase their retirement savings.
This guide provides essential information to help business owners comply with EPF regulations and assist employees in building a substantial retirement fund.
How Does EPF Work?
Eligibility and Mandatory Conditions
All salaried employees are eligible for EPF. However, there are specific instances where EPF is mandatory:
Your organization has 20 or more employees.
Your employee earns less than ₹15,000 per month.
EPF Contributions
Both employers and employees must contribute a fixed percentage of the employee's salary to the EPF each month. The contribution amount is based on the employee's EPF wages, which include:
- Basic pay
- Dearness allowance
- Other allowances (excluding house rent allowance)
If an employee's monthly basic pay exceeds ₹15,000, then only their basic pay is considered as EPF wages.
| Salary components | Exp 1 | Exp 2 |
| Basic pay (Always considered for EPF) | 25000.00 | 12000.00 |
Transport allowance (Considered for EPF only when basic pay is lesser than ₹ 15,000) | 5000.00 | 1500.00 |
Telephone allowance (Considered for EPF only when basic pay is lesser than ₹ 15,000) | 4500.00 | 1000.00 |
| EPF contribution. | ₹ 3,000 (12% of ₹ 25,000) | ₹ 1,740 (12% of ₹ 14,500) |
EPF Contribution Rates
Standard Contribution
Employers and most employees: Contribute an equal share of 12% of EPF wages every month.
Exceptions (10% Contribution Rate)
Employees contribute only 10% of their EPF wages if they work for a company that:
Has fewer than 10 employees.
Is declared a sick industrial company by the Board for Industrial and Financial Reconstruction.
Has accumulated losses equal to or exceeding its entire net worth at the end of the financial year.
Belongs to the jute, beedi, coir, or guar gum industry.
Responsibility for Contributions
Employers: Collect contributions from employees and add the employer's share each time payroll is processed.
Employee's Contribution: Goes entirely to the EPF.
Employer's Contribution: Is split between EPF, Employees' Pension Scheme (EPS), and Employees' Deposit Linked Insurance (EDLI).
| Scheme | Employer Contribution | Employee Contribution |
| Employee Provident Fund | Diffrent of Employer and Employee's EPF Share. | 12% or 10% |
| Employees' Pension Scheem | 8.33% | NA |
Employees Deposit Link Insurance Scheme(EDLIS) | 0.5% | NA |
| EPF Adminnstration Charges | 0.5% | NA |
Overview of EPF Contribution Schemes
Employees' Pension Scheme (EPS)
Purpose: Provides a monthly pension to employees and their dependents after retirement.
Contribution: Only the employer contributes 8.33% of the employee's EPF wage.
Maximum Contribution: Based on a maximum wage limit of ₹15,000, the employer's maximum contribution is 8.33% of ₹15,000, which is ₹1,250.
Employees' Deposit Linked Insurance Scheme (EDLI)
Purpose: Offers insurance coverage to employees of registered organizations.
Contribution: The employer contributes 0.5% of the employee's EPF wage every month.
Maximum Contribution: Based on a maximum wage ceiling of ₹15,000, the employer's contribution cannot exceed ₹75 per month, even if the EPF wages are higher.