Provident Fund (PF) is one of the top ways of creating a pool of resources for your future. The PF scheme is available to different employees, free-lancers, and government officials in varied forms. However, the most impactful PF scheme is the EPF scheme which stands for employees provident fund scheme. Governed under the Employees Provident Fund and Miscellaneous Provisions Act, this scheme is the most common because it includes PF contribution from both, the employer and employee. However, this leads to confusion at times while calculating PF. Hence, it is important for business owners to learn the PF calculation formula. Once you know the PF calculation formula, you can easily understand how to calculate PF on salary. Knowing the PF calculation process is important for the employer and the employee both as it helps in analyzing and managing the employees PF account.
In this blog, we focus on understanding the PF calculation formula and provide a detailed guide on how to calculate the PF on salary. This will help the employer and employee figure out their exact PF contribution. Let’s dive in!
What is EPF?
EPF or employees provident fund is a type of provident fund that makes it mandatory for all employers with more than 20 employees to be registered under this scheme. As per the EPF scheme, EPFO registration is also mandatory for all such employees whose income is less than INR 15,000/- per month. There are many components of PF that make it an easy and safe financial savings plan.
Also Read: What is PF and Types of Provident Fund
What is the PF calculation formula?
The formula that all the establishments registered with the EPFO use, to determine the contribution rates and the total PF contribution in an employee’s PF account is the PF calculation formula. The prevailing epf calculation formula in India is as follows:
Sum of PF account = Employers’ PF Contribution + Employees PF Contribution.
Employees PF contribution = Basic Salary + Dearness Allowance * 12%
Employer’s PF contribution = Basic Salary + Dearness Allowance * 12% ; or
Basic Salary + Dearness Allowance * 3.67% (if Employees’ Pension Scheme is applicable)
What is PF contribution Rate?
PF contribution rate refers to the percent of amount an employer and employee needs to contribute towards the PF account of the employee. The PF contribution rate is decided by the EPFO in accordance with the prevailing laws. The PF contribution rate for employer and employee varies. Let’s see how:
Employees’ PF contribution rate
The PF contribution rate of an employee in India is 12% of his basic salary + dearness allowance (if applicable). As you can see, the employees’ contribution is an integral aspect of the pf calculation formula. Besides, if the employee is aware of their contributions and also understands how to calculate pf in salary, they can easily check and manage their PF accounts.
Also Read: How to create EPF login for members
Employers’ PF contribution
Employers also need to contribute an equal amount, ie., 12% of the basic salary and dearness allowance of the employee. This is also a very important part of the pf calculation formula. However, if the employer is also contributing under the Employee’s Pension Scheme, 8.33% from the employer’s contribution is transferred towards the Employee’s Pension Scheme. Which means, in this scenario, the employer only needs to contribute 3.67% to the employees PF account.
How to calculate PF in salary?
After the EPF registration process is complete, it is important to understand the EPF calculation formula in order to calculate the PF on salary. The best possible way to understand how to calculate PF is through an example. Let’s try to understand the PF calculation through the below example:
Facts: Suppose John is working in XYZ pvt Ltd and his basic salary including the dearness allowance is Rs. 13000/-. Provident Fund and Pension fund are both applicable to John. Now, let’s see how much he and the company will contribute towards his future savings.
John’s PF calculation: For John’s calculation, you need to take 12% of Rs. 13,000/- which is Rs. 1560/-. This amount will be John’s monthly contribution to his PF account.
Employer’s PF calculation: Since EPF is applicable, the company will contribute 8.33% towards EPS and 3.67% towards the EPF. So,
Employer’s EPF contribution for John is 13,000 * 3.67% = INR 477.1/-
Employer’s EPS contribution for John is 13,000 * 8.33% = INR 1082.9/-
For all employees, the provident fund scheme provides a great opportunity to create a savings pool for the future. It leverages a strong financial plan for the youth. Hence, it is important for the employees to understand how to calculate PF. Once you understand the epf calculation formula, you can secure your funds. Contact us for more information on PF registration!