The PF scheme run by EPFO is mandatory for all private companies where more than 20 employees work. Under this scheme, the company has to deposit 12% of the basic salary of its employee in the PF account. That is, both the employee and the company together deposit money in the PF. But in the pay-slip, it often seems that the company’s contribution is less than your contribution. So let’s know what the reason is for this.
How does the company’s contribution work in PF?
All the money deposited in the PF does not go directly to a single bank account. Its contribution is divided into different parts, which include retirement benefits, pension scheme, and insurance scheme. According to the rules of EPFO, money goes into these three schemes. Let’s understand this with an example.
This is how the entire calculation of PF is done
Suppose, if you deposit ₹2000 from your salary in PF every month, then the company will also have to deposit ₹2000, due to which a total of ₹4000 will be deposited in your PF account every month. Annual interest is also received on this.
The entire ₹2000 deposited by you is deposited directly in your PF account. But the company’s ₹2000 is divided into two parts. Out of this, 3.67% i.e., about ₹611, goes to your PF account. The remaining 8.33% i.e., about ₹1389, goes to the Pension Scheme (Employee Pension Scheme). This is why it appears in your pay slip that the company’s PF contribution is less than your contribution, because their entire money does not go directly to PF, but a large part of it goes to the pension scheme.
Why is this division necessary
This division is done so that after your retirement, you get not just one but two types of benefits. Lump-sum amount, which you can withdraw whenever needed. An income every month after retirement, which ensures your financial security. So the next time you see your pay slip, don’t worry. Both the company and the employee contribute 12%; the company’s money is divided between the PF and the pension scheme. This is a well-thought-out plan to secure your future.