EPF (Employees’ Provident Fund) is a popular savings scheme initiated by the Government of India in 1952 for the welfare of salaried employees.
Both employer and employee contribute towards EPF, which was made mandatory by the government to develop a habit of savings among people. This scheme also ensures that an employee retires with dignity by getting a lump sum amount of savings on his retirement. Therefore, it becomes important for every individual to understand the basic meaning of what EPF wages means and how it is one of the best investment options for employed individuals.
EPF Wages Means
EPF wages means the contribution made to the employee provident funds by the employee as well as the employer. It is a retirement scheme handled by the Employees provident fund organization (EPFO). The employee and the employer contribute 12% of the basic salary and their dearness allowance every month. Every employed individual must have an EPF account to save up for their retirement.
Learn the Basics – How Does EPF Work
Before understanding what EPF wages means, let us understand the basic concept behind EPF.
Every month, the employer and the employee contribute an equal amount of money, which is 12% of the employees’ basic salary. This includes basic pay plus dearness allowance. On retirement, the employee receives this lump sum amount along with a fixed rate of interest set by EPFO. However, the interest earned is tax-free.
Every employee is provided with a UAN (Universal Account Number), and all the EPF transactions are updated here. Out of the 12% contribution of the employer, 3.67% goes towards EPF and 8.33% towards EPS (Employee Pension Scheme).
- EPF wages mean the total contribution made to the Employee Provident Fund every month.
- The responsibility of paying the EPF wages to the fund lies on the employer.
- Failure to make the payment of the EPF wages can lead to penalties.
Also Read: EPFO Unified Member Portal
What is EPF Wages and EPS Wages?
EPF and EPS are two of the government’s most popular retirement savings schemes to promote working individuals to save for their retirement. More often than not, people confuse both of these terms for each other. Though they are similar in nature, there are some major differences between the two. EPF requires 12% contributions from the employee and the employer’s side, whereas EPS does not require any contribution from the employee. Some of the major defining differences between the two are:
|Employee contribution||10% – 12% of percentage on salary||–|
|Employer contribution||3.67 % of the basic salary||8.33% of the basic salary|
|Age limit for withdrawal||Not required||10 years of service or 50 years of age|
|Interest rate||Interest rate is received||No interest rate applied|
Employee Contribution Towards EPF
The EPF wages means different things to salaried people of different income slab. The rate of contribution is 12%; however, in some cases, it may be 10% of the basic pay and Dearness Allowance for the following companies:
- If the company has a maximum of 19 employees.
- The company falls in the category of jute, beedi, brick, and guar gum factories.
- The company has suffered heavy losses (annual loss is more than its net worth).
- BIFR (Board of Industrial and Financial Reconstruction) has declared the industry unviable.
- The company operates under a wage limit of Rs. 6,500.
Besides this, the rate of contribution for female employees for the first three years is 8%. This is to encourage businesses to hire more female employees and enable them to safeguard their retirement funds.
Employer Contribution Towards EPF
Out of the 12% contribution of the employer, 3.67% goes towards EPF and 8.33% towards EPS. Even in the case of a female employee, the employer has to contribute 12% after the first three years.
How to Calculate EPF Wages?
EPF wages mean the amount of total contribution to the Employee Provident Fund every month.
Let us assume a person’s basic salary, including his dearness allowance, is Rs. 25,000.
Every month, he has to contribute 12% of it, which would mean Rs 3,000. Now, the employer would contribute 3.67% towards EPF, which would come up to Rs. 917.50 every month and the remaining 8.33% towards EPS (Employee Pension Scheme), which comes to Rs. 2,082.50 every month.
As per the regulations, the employer can contribute a maximum of 8.33% of Rs. 15,000 towards EPS. This, when calculated, comes to Rs. 1,249.50.
So, what happens to the difference amount of Rs. 833 (2,082.50 – 1,249.50)?
This amount is transferred to the employers’ EPF contribution instead of the EPS.
Finally, the amount paid by the employer would be Rs. 2,915.50 (833 + 2,082.50). This amount would further be corrected to the nearest decimal which would be Rs. 2,915. The total EPF contribution by the employer and the employee would be Rs. 5,915 (Rs. 3,000 from the employee’s contribution added to the Rs. 2,915 contribution made by the employer).
To understand better, let us take another scenario. Let’s assume a person’s basic salary, including his dearness allowance, is Rs 14,000.
Employee contribution towards EPF will be Rs. 1,680 (12% of Rs. 14,000). The employer’s contribution towards EPF is Rs. 514 (3.64% of 14,000), whereas towards EPS would be Rs 1,166 (8.33% of Rs. 14,000).
In this case, the total contribution towards the EPF account would be Rs. 2,194 (Rs. 1,680 from the employee and Rs. 514 from the employer). Since the employer’s contribution to the EPS was Rs. 1,166, which is less than Rs. 1,249.50 (8.33% of Rs 15,000), in this case there is no need to add anything extra to the EPF.
After calculating the EPF wages, EPFO adds the fixed interest rate to the contribution. This interest rates change every year. The interest rate for FY 2022-23 is 8.1%.
Did You Know?
Employees can voluntarily contribute a higher amount towards EPF. In this case, the employer does not have to match the excess amount. This is accounted for separately and is called Voluntary Provident Fund.
EPF Wages Return Filing Date
Now that we have understood what EPF wages means and how to calculate EPF wages, let us explore the due dates for filing returns related to EPF.
Every month, the government deducts EPF from the employee’s salary and pays it to the fund. The payment due date is the 15th of next month. The employer should make sure that all the payments are cleared before the due date. For example, if an employee receives the salary for the month of June, then his EPF will be paid on the 15th of July.
The due date for the annual returns of EPF is 25th April of the following year. In some exceptional cases, the due date may be changed or extended by the government. For instance, during COVID 19, the payment for March 2020 was supposed to be made by the 15th of April 2020. It was extended by the government to 15th May 2020.
How to Calculate Arrears for EPF Wages?
After understanding what EPF wages means, it becomes crucial to know about the due dates related to making EPF payments. This helps everyone secure their investment. The EPFO will impose a penalty if there is a delay in the EPF payment beyond the due date. An individual can face two types of penalties if they fail to make their contributions. If the employer fails to deposit the EPF amount before the due date, they will have to pay 12% per annum interest for every single day’s delay.
Apart from the interest, there is also a penalty for failure to pay the EPF amount:
- Delay of up to 2 months interest of 5% per annum
- Delay of 2 to 4 months interest of 10% per annum
- Delay of 4 to 6 months interest of 15% per annum
- Delay of more than 6 months interest of 25% per annum
Word to Remember
EPS – Employee Pension Scheme.
The EPF Scheme includes contributions towards the Employee Pension Fund as well. This is a non-interest earning fund meant for the financial security of the employees post their retirement. Some EPF contributions also cover contributions towards the Employees’ Deposit Linked Insurance Scheme (EDLI) which provides a small insurance cover for the employees.
Did You Know?
From June 1st 2021, linking Aadhar cards with EPF has become mandatory.
EPF is an integral part of an employee’s compensation. Many times, EPF funds help cover unexpected and big expenses like medical emergencies or the higher education or marriage of children. Deducting and paying EPF on time is a significant responsibility of the employer. The employer could face serious legal ramifications if they fail to adhere to the EPF regulations. It is a must for every employee to know their rights and learn what EPF wages means, how to calculate EPF wages and all the other rules related to the EPF scheme for their long-term benefit.
EPF wages are calculated by adding 12% of employees’ contribution as well as 12% of the employer’s contribution.
The wage limit in EPF is currently at 15,000 rupees.
EPF wages in the passbook allow employees to keep track on whether the employer is contributing to their EPF account on a monthly basis, the interest given by EPFO and the transfer claim, if any.
Yes, an individual can withdraw their EPS and EPF savings by claiming form 10C. Based on the years of service, an employee can only withdraw a certain percentage of EPS savings.
If the monthly salary of an employee is 15,000 or more then they are eligible for an EPF account. The contribution is 12% of the basic salary of the employee.
Yes, but only the employee’s contribution is included in gross taxable income.
Yes, the employer has to register all his companies separately.
Yes, they have to be declared. It will be taken into account during inspection charges. Moreover, EPF wages cannot be validated if wages are entered as 0.
Your entire salary and dearness allowance can be contributed. You can also avail income tax rebate under Section 80C.
Yes, after 1 month of unemployment, you can withdraw 75% of your EPF deposit. The remaining 25% can also be withdrawn if you are unemployed during the 2nd month also. Depositing your EPF wages means you will be eligible for these benefits.
Under Section 80C of the Income Tax Act of 1961, an employee can get tax benefits for the EPF deposits. Any contribution up to 1 lakh in the PF account per year can be availed with tax benefits. The deposits should be for 5 years. In case withdrawals are made before 5 years, then tax will be deducted at source (TDS).