What is EPF?

Definition

The Employees Provident Fund is a statutory retirement savings scheme where both the employee and the employer contribute twelve percent of basic and allied wages each month, under the Employees Provident Funds and Miscellaneous Provisions Act 1952.

How it works

The employee twelve percent goes entirely to the provident fund account. The employer twelve percent is split, with a portion going to the Employees Pension Scheme up to the applicable wage ceiling and the balance to provident fund. The accumulated balance earns interest at a rate declared annually.

What it means in India

The Act applies to establishments in scheduled industries employing twenty or more persons, and coverage continues once it attaches. There is a statutory wage ceiling for mandatory coverage, and contributions above it are possible by agreement. Employees who join above the ceiling and have no existing provident fund membership may be excluded, which is a decision to make at joining rather than later. Administrative charges are payable by the employer in addition to the contribution.

What people get wrong

• Computing provident fund on gross rather than on basic and allied wages, which overstates the contribution and the cost.
• Splitting pay into allowances to shrink the wage base, an approach that has been the subject of significant Indian litigation.
• Not linking the universal account number when an employee joins from another employer, which strands the earlier balance and leaves the service period broken.

Work out your own number

The arithmetic on this page is easier to check against a real salary than to follow in prose, so there is a free page that does it for you. No sign-up.

Terms this one depends on

More on statutory deductions and benefits

Where this shows up in practice

Almost everything on this page ends up as a line on a payslip or a figure in a register. Shiftelio keeps attendance, leave, salary structure and the statutory deductions in one place, so the number in the letter and the number in the payslip come from the same record.