The interest rate of EPF stands to be 8.55%. It is also crucial to note that you and your employer both pay in 12% of your basic pay as a contribution to your EPF account. But there is a question that remains mostly unanswered which happens to be, whether the PF contributions are deducted from the arrear as well? There is the confusion that if there is a salary revision and a raise on the basic salary of the employee; do we need to pay PF deductions from the arrears? So in this article, you will get the queries related to it answered.
PF Deductions In Case Of Salary Revision
As you progress within an organization, you gain experience. And with experience, you learn skills and principles that are applicable within your field. So, as a result, you are subjected to higher salary pay which you have earned through your hard work and dedication.
So this leads to higher basic payslip. But as the payslip increases you and your employer’s percentage contribution remains the same. But 12% of your basic pay increases and hence your overall contributions increases.
So, to sum up, with the increase in basic pay, your EPF contributions increase from the month you get your increased salary slip in your hand. And accordingly, your interest is calculated. Also, it is crucial to note that this remains the same whether you are a contract employee or a full-time employee.
PF Deductions On Arrears
Now let us consider the situation wherein you are subjected to arrears. Arrears is the money that is owned by an individual that should have been paid earlier by the person. This can be due to various reasons.
But when it comes to EPF, arrears are considered to be emoluments under the guidelines of the Provident fund’s scheme. Here the term emoluments mean the wealth that you earn from your job in the form of arrears. They are considered to be your profits that are needed to be subjected to EPF deductions.
And hence EPF contribution is subtracted from the arrears that you have. To sum it can be inferred that, the sum of your salary or profits that you earn is subjected to EPF while working in the organization. Your payslip may change but the percentage contribution remains the same.
EPF deductions are meant to be for your betterment. Employees often tend to overlook their future perspective and in order to live in the present. So, they forget to save for their future. The Government of India through EPFO( Employees Provident Funds Organization), realizes this as an area of concern. And hence they prefer the individuals to have a good amount in their EPF account so that an individual can secure his/her retirement plans. This makes an employee be financially independent even in the later stages of their life. So, a part of the increased salary should be contributed to your future. So, the EPF contributions also increase as and when your basic payslip or the profit that you earn increases.