Guest Post: Reduction of Provident Fund Contributions to Statutory Limits

following post is contributed by Madhusudan
, who is a lawyer and company secretary by profession, at PRA Law
Offices, New Delhi]
the Employees Provident Fund Organization (“EPFO”) issued a
communication dated May 27, 2014, directing all Regional PF Commissioners not
to force employers to contribute over and above the statutory wage ceiling in
respect of their employees. The said communication has been widely reported in
leading newspapers.
tersely worded communication in effect appears to reiterate what is already
provided in the EPF Scheme. 
26-A(2) of the EPF Scheme provides that where the monthly pay of a Member
exceeds Rs.6,500/-, the contribution payable by the employer will be limited to
the amount payable on a monthly pay of Rs.6,500/-. Rule 29 separately provides
that an employee may make EPF contribution exceeding 12% of this monthly pay; however,
the employer shall not be under an obligation to pay any contribution over and
above his contribution payable under the Employees Provident Fund and
Miscellaneous Provisions Act, 1952 (the “EPF Act”). 
So what then was the purpose of the
above communication by EPFO?  In the said
letter, EPFO has separately stated that it will not be going in for review
against the judgement of the Hon’ble Supreme Court of India in the matter of Marathwada
Gramin Bank Karamchari Sangathan & Ors. Vs. Management of Marathwada Gramin
The Curious Case of Marathwada
Gramin Bank Employees’ Union
Facts of the case
In the above case, the employer was
a bank which once had its own PF Trust for the benefit of employees.
Subsequently, the permission granted to the employer to operate its own PF
Trust was withdrawn. Thereupon, the employer started making contributions as
per the EPF Scheme.
Pertinently, in both the above
situations, the employer was voluntarily making its PF contributions, in excess
of the statutory limits.
Owing to losses, the employer sought
to discontinue payment of provident fund in excess of its statutory
liability.  The workers contested the
action taken by the employer before the Industrial Tribunal under the
Industrial Disputes Act, 1947. 
One important argument taken by the
employees was that the employer was prohibited from reducing the amount of PF
contribution under Section 12 of the EPF Act. 
Section 12 of the EPF Act provides as under:
“No employer … shall, by reason only of his liability for the payment
of any contribution to the Fund … reduce, whether directly or indirectly, the
wages of any employees to whom the Scheme or the Insurance Scheme applies or
the total quantum of benefits in the nature of old age pension, gratuity
provident fund or life insurance to which the employee is entitled under the
terms of his employment, express or implied.”
Based on the provisions of Section
12, the Industrial Tribunal ruled in favour of the employees, and directed that
the employees shall continue to draw equal amount of contribution from the
employer towards provident fund without any ceiling on their wages.
Courts rule in favour of the employer
On examination of Section 12, the
Bombay High Court observed that the employer would be barred from reducing its
PF contribution, only if the same were contrary to the terms of employment of
the employees. In the present case, the terms of employment of the bank’s
employees expressly provided that the provident fund contributions would be in
accordance with the EPF Act. In other words, there was no provision in the
terms of employment which required the employer to make PF contributions beyond
its statutory obligations.
The Supreme Court, on appeal,
concurred with the judgement of the Bombay High Court and observed that the
employer cannot be compelled to pay PF contributions in excess of its statutory
liability just because it started making PF contributions in excess of its
statutory liability for some time. 
It appears that EPFO had internally
examined the feasibility of filing a review petition against the above Supreme
Court judgement. Ultimately, EPFO has taken a call not to go in for a review,
and this has been communicated vide EPFO’s letter dated May 27, 2014 discussed
To conclude, employers always had
the right to limit their provident fund contributions to the limits laid down
under the EPF Act. Subject to anything to the contrary in the terms of
employment, if the employers are making provident fund contributions above the
statutory limits, there is no bar on them from reducing the same to the limits
under the EPF Scheme. The EPFO now appears to be in agreement with this
On a different note, the above
discussion would not be relevant in case of PF contributions of international
workers. So far as international workers are concerned, their provident fund
contributions are calculated on their total monthly pay. In other words,
the contribution of the employer is not limited to the amounts
payable on a monthly pay of Rs.6500/-.

– Madhusudan Bose

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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