Financial security is a critical aspect of any employment framework, and the provident fund (PF) contributions aim to offer this peace of mind to employees. In this blog we aim to help you under what is PF contribution and have a deep dive into various components of the same.
In its simplest explanation, PF contribution is the amount that gets deposited into an employee’s PF account every month. It is deducted from the gross salary of the employee and the employers add to the pool the same amount.
The PF system is still a much sought-after ‘benefit’ by many individuals when considering a job offer and companies in order to determine the CTC. It promotes long-term savings for employees, helping them address retirement needs, long terms plans or emergencies. This comprehensive guide aims to clarify what is EPF contribution, outline both employee and employer contributions and emphasise the importance of this system that promises to ensure a secure financial future.
Need help staying compliant
The employer’s contribution to EPF is the other accumulating factor of the provident fund corpus. It creates a strong financial safety net for employees. Similar to the employees, employers also contribute 12% of the gross salary an employee is entitled to every month.
EPF/PF contributions is a system that helps both employees and employers. Some of its benefits include:
The employees PF contribution is determined as a percentage of the employee’s basic salary along with the all the allowance and benefits.
Consider the below example of a person who gets ₹25,000 as gross salary every month.
Basic Salary + Allowance: ₹25,000
Total monthly contribution (Employee + Employer): ₹6,000
Employers with 20 or more employees must register under EPFO to avoid any compliance violations. Organisations with less than 20 employees can voluntarily register.
Once registered, companies must follow strict deadlines to meet compliance requirements to ensure smooth operations and avoid penalties. Both employee and employers contributions to provident fund must be deposited into the EPF account by the 15th of each month. Failing to meet this deadline can result in serious consequences, including fines and interest on late payments.
The essence of strength of the system, of what is EPF contribution, lies in its strict compliance. Consistent PF contributions help employees accumulate a significant retirement fund. Regular contributions also:
Provident Fund plays a crucial role in an employee’s long-term financial planning. It’s important to understand what is PF contribution and the responsibilities of both employees and employers in building this fund for financial stability. By maintaining regular contributions and compliance, organizations can create a secure and motivated workforce.
