Managing employee salaries involves more than just monthly payouts, especially when it comes to statutory contributions like Provident Fund (PF). Many employers struggle to understand how PF is split between EPF, EPS, and EDLI, or how to calculate it correctly for compliance.
But getting it right is important. It ensures your company follows the law, avoids penalties, and supports employees in building a secure financial future.
In this blog, we’ll break down the PF contribution structure, explain how the employer and employee shares work, and show you how to calculate them with real examples. Whether you’re a growing startup or a well-established company, this guide will help you make sense of PF contributions, clearly and confidently.
Provident Fund (PF) is a government-backed retirement savings scheme where both the employer and employee contribute a portion of the employee’s salary every month. Managed by the Employees' Provident Fund Organisation (EPFO) in India, the main goal of PF is to help employees build a financial cushion for their retirement years.
The PF amount grows over time through monthly contributions and interest, and employees can withdraw the funds during retirement or under specific conditions like a job change, buying a house, or medical emergencies.
Why Should Employers Understand PF Breakup?
Understanding how PF contributions are structured and calculated helps employers stay compliant and manage payroll efficiently. Here’s why it matters:
Avoid legal penalties by ensuring accurate PF deductions and contributions.
Build employee trust with transparent salary structures and clear PF details.
Ensure payroll accuracy with proper contribution split across EPF, EPS, and EDLI.
Plan finances better by knowing your organisation’s exact monthly PF liability.
Support employee welfare by contributing correctly to their retirement savings.
Simplify audits and inspections with clear documentation and compliance.
Now that you understand what PF is and how important it is, let’s take a closer look at the three key components that make up the Provident Fund scheme, and how each one plays a unique role in securing your employees’ future.
Provident Fund is a three-part scheme that helps secure your employees' future. It covers savings, pension, and life insurance, all bundled under one system. As an employer, understanding each component helps you manage contributions accurately and support your team’s financial well-being.
Let’s break down each component:
1. Employees’ Provident Fund (EPF)
What is it?
EPF is a retirement savings scheme where both the employer and employee contribute a fixed percentage of the employee’s salary every month.How it works: Employees contribute 12% of their eligible wages toward EPF. Employers also contribute 12%, but only 3.67% of it goes into the employee’s EPF account; the rest goes to the EPS
Benefits:
Helps employees build a secure financial reserve for retirement
Earns compound interest, making it grow steadily over the years
Can be partially withdrawn for specific needs like housing, education, or medical emergencies
Example: If an employee earns ₹25,000 as basic salary, ₹3,000 (12%) will be deducted from their salary. The employer will also contribute ₹3,000, but only ₹1,750.50 will go to EPF after allocating the rest to EPS.
2. Employee Pension Scheme (EPS)
What is it?
EPS is designed to provide a monthly pension to employees after they retire or in case of permanent disability. The employer’s share fully funds it.How it works: From the employer’s 12% contribution, 8.33% of a capped salary (₹15,000) goes to EPS. That means even if an employee earns more, only ₹1,249.50 is contributed monthly to EPS.
Benefits:
Offers employees a steady monthly income after retirement (at age 58 or above)
Provides family pension to dependents in case of the employee’s death
Available to employees who have completed 10 years of eligible service.
Example: For an employee with a ₹25,000 basic salary, the EPS contribution will still be ₹1,249.50, because EPS is limited to 8.33% of ₹15,000.
3. Employees’ Deposit Linked Insurance Scheme (EDLI)
What is it?
EDLI is a life insurance cover provided to employees during their service period, with no involvement from the employee. The employer pays it entirely.How it works: Employers contribute 0.5% of the employee’s basic salary, up to a maximum of ₹15,000. This ensures that employees are automatically covered under EDLI without needing to fill out any forms.
Benefits:
In case an employee passes away while in service, their nominee receives a lump-sum insurance payout
Provides coverage of up to ₹7 lakh, depending on the employee’s last drawn salary
No need for the employee to pay any premium or take any separate insurance policy
Example: If an employee passes away while working, their nominee may receive an amount based on the salary drawn in the past 12 months, up to ₹7 lakh as per EPFO rules.
Together, EPF, EPS, and EDLI ensure your employees are financially supported not only after retirement but also in times of loss or uncertainty. For employers, understanding how these components work is crucial for accurate payroll management and building employee trust through transparent and compliant practices.
When it comes to Provident Fund (PF), both employers and employees are responsible for contributing. These contributions are monthly deductions from the employee’s salary and matching contributions by the employer, each serving a specific purpose.
Understanding who contributes, how much, and where the money goes helps you, as an employer, stay compliant with EPFO guidelines while ensuring transparency in payroll.
Here’s a simple breakdown of how PF contributions work:
1. Both employer and employee contribute to EPF
The employee contributes 12% of their basic salary towards the Employees’ Provident Fund (EPF).
The employer also contributes 12%, but it’s split between EPF, EPS (pension), and EDLI (insurance).
The full 12% from the employee goes directly to their EPF account.
2. Only employers contribute to EPS and EDLI
From the employer’s 12%, 8.33% (of ₹15,000 max) goes into the Employee Pension Scheme (EPS).
An additional 0.5% is contributed towards EDLI, which covers insurance. This 0.5% is over and above the 12% contribution.
Employees do not contribute to EPS or EDLI at all.
3. Conditions for reduced 10% employee contribution
In some special cases, the employee contribution can be reduced to 10% instead of 12%. This is allowed under EPFO rules for:
Organisations with 19 or fewer employees.
Employers that have registered financial losses.
Sick Industrial Companies declared by BIFR.
Certain labour-intensive industries such as: Jute, Beedi, Brick manufacturing, Coir production, Guar gum processing.
Employers have the option to cap the contribution to 15000, while the employee can contribute to higher amounts.
We've covered the core components of the PF scheme. Let’s now break down how the employer’s share of the contribution is allocated and what your responsibilities are under EPFO guidelines.
As an employer, you are legally responsible for contributing to your employees’ Provident Fund. But the obligations and rules can vary depending on your organisation’s size and registration status. Whether you're running a small business or a growing enterprise, knowing your role in the PF contribution process is key to staying compliant and avoiding penalties.
Here’s what you need to know about the employer’s side of PF contributions:
1. Mandatory for organisations with 20 or more employees
If your company has 20 or more employees, it is compulsory to register under the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952.
You must contribute 12% of the employee’s basic wages + dearness allowance every month. This is only mandatory for the employees earning up to 15000 or the employees having an existing active UAN.
This contribution is made in addition to the employee’s 12%, and is split between EPF, EPS, and EDLI.
Once registered, your business must continue making contributions as long as the employee is on your payroll and eligible for PF.
2. Voluntary for organisations with fewer than 20 employees
Companies that employ fewer than 20 people are not legally required to register under EPF. However, they can opt in voluntarily.
Voluntary registration requires mutual consent from both the employer and the employees.
Once approved, the employer must comply with the same contribution rules as any other registered company.
This option is often used by small startups or family-run businesses that want to provide formal retirement benefits to their teams.
3. Employer's share cannot be deducted from employee salary
This is a common compliance pitfall. The employer's 12% share is an additional expense, and must be paid entirely by the company.
It is illegal to recover the employer’s share by reducing the employee’s salary or deducting it under any head.
EPFO inspections often flag this issue, so it’s important to keep payroll clean and transparent.
Let’s understand this better with a simple example:
Let’s say your company has 30 employees, and one of them has a basic salary of ₹25,000.
Employee’s contribution (12%) = ₹3,000
Employer’s contribution (12%) = ₹3,000
Of this, ₹1,249.50 goes to EPS (8.33% of ₹15,000 limit)
The remaining ₹1,750.50 goes to EPF
Plus, an additional 0.5% of ₹15,000 (₹75) goes to EDLI from the employer
So, in this case, the employer will pay a total of ₹3,075 for that employee, not including small admin charges.
Understanding this split not only helps with accurate payroll processing but also ensures your company is fully compliant with PF regulations and employee benefit expectations.
Employees are equally responsible for contributing to the Provident Fund. Their contributions form the foundation of their long-term savings and are directly deposited into their EPF account every month. As an employer, understanding how employee contributions work can help you manage payroll correctly and respond to employee queries with confidence.
Here’s what you need to know about the employee’s side of PF contribution:
1. Minimum contribution is 12% of basic salary
Every eligible employee must contribute 12% of their basic salary plus dearness allowance to their EPF account each month.
This is a mandatory deduction under the EPF scheme.
The contribution is made from the employee’s earnings.
It goes entirely into their Employees’ Provident Fund (EPF) account and earns annual interest.
Over time, these contributions grow and form the employee’s retirement corpus.
2. Employees can contribute more than 12% voluntarily
Employees who wish to save more can opt for the Voluntary Provident Fund (VPF), which allows them to contribute above the standard 12%.
There is no upper limit on how much they can contribute—it can go up to 100% of their basic salary.
These extra contributions also earn the same interest as regular EPF contributions.
However, the employer is not required to match any amount beyond the mandatory 12%.
VPF is a good option for employees looking for tax-saving investments and higher retirement savings.
3. Contributions stop when the employee leaves the job
Once an employee exits the organisation, their PF contributions come to a halt.
Employees cannot contribute to EPF on their own after leaving the company.
They can either withdraw the full balance or transfer it to the new employer’s EPF account, if they continue working elsewhere.
No fresh contributions are permitted unless the employee joins another EPF-registered organisation.
Let’s understand this with a quick example:
Suppose an employee earns a basic salary of ₹20,000 per month.
Mandatory contribution (12%): ₹2,400 will be deducted from their salary every month and deposited into their EPF account.
If the employee opts for Voluntary Provident Fund (VPF) and decides to contribute 20% instead of 12%, then:
₹4,000 (20% of ₹20,000) will be deducted from their salary.
However, the employer will still contribute only 12% (₹2,400), and not match the additional VPF amount.
Now, if this employee resigns or retires, the contributions from both sides stop. The employee can then either:
Withdraw the accumulated PF amount, or
Transfer it to a new employer if they join another EPF-registered organisation.
Understanding how PF contributions are calculated is essential for accurate payroll processing. Let’s dive in!
Both the employee and employer contribute 12% of the employee’s basic salary each month, but the PF breakup of the employer’s share is split into different components: EPF, EPS (pension), and EDLI (insurance). The calculation also depends on whether the employee’s basic salary is within or above the EPFO’s wage ceiling of ₹15,000 for pension contributions.
Let’s understand this better with an example:
Suppose an employee has a basic salary of ₹25,000.
1. Employee’s PF Contribution
12% of ₹25,000 = ₹3,000
This amount is deducted from the employee’s salary and deposited fully into their EPF account.
2. Employer’s Total PF Contribution
The employer also contributes 12% of ₹25,000 = ₹3,000
However, this is split between EPF and EPS (and EDLI is paid separately):
3. Employer’s EPS (Pension) Contribution
The pension scheme (EPS) has a wage cap of ₹15,000.
So, even though the employee earns ₹25,000, EPS is calculated as: 8.33% of ₹15,000 = ₹1,249.50
This is the maximum amount that can be contributed to EPS monthly.
4. Employer’s EPF Contribution
Out of the total ₹3,000 contribution, ₹1,250 goes to EPS
The remaining goes to EPF: ₹3,000 − ₹1,250 = ₹1,750 goes to EPF
5. EDLI and Other Charges
Apart from the 12%, the employer also contributes to:
EDLI (insurance): 0.5% of ₹15,000 = ₹75
Administrative charges (EPF & EDLI): Around 0.5% in total
These are additional and not deducted from the employee’s salary.
Summary of PF Calculation for ₹25,000 basic salary:
Contribution Type | Amount (₹) |
Employee’s EPF (12%) | ₹3,000 |
Employer’s EPF (3.67%) | ₹1,750.50 |
Employer’s EPS (8.33%) | ₹1,249.50 |
Employer’s EDLI (0.5%) | ₹75 (extra) |
Now that you understand how PF contributions are calculated, let’s break down the exact percentage split between EPF, EPS, and EDLI for both the employer and the employee.
Although we've briefly explored these numbers earlier, let's now dive deeper for a clearer and more focused perspective. This helps you understand where every part of the 12% contribution from both employer and employee goes—and why it’s split that way.
Here’s a quick view of how each contribution is allocated under EPFO norms:
1. Employee’s Contribution
12% of the basic salary goes entirely to the EPF account.
This amount is deducted from the employee’s salary and is used for building a retirement fund.
No part of the employee’s contribution goes to pension (EPS) or insurance (EDLI).
2. Employer’s Contribution
The employer’s 12% contribution is divided into three parts:
EPF – 3.67%
A portion of the employer’s contribution goes into the employee’s EPF account.
This is added on top of the employee’s 12%, making the retirement corpus grow faster.
EPS – 8.33%
This part goes to the Employee Pension Scheme, up to a maximum of ₹1,249.50 per month (based on the ₹15,000 salary cap).
It helps provide a monthly pension to the employee after retirement.
EDLI – 0.5%
This is contributed separately by the employer to provide life insurance cover under the EDLI scheme.
It offers up to ₹7 lakh to the employee’s nominee in case of death during service.
This amount is over and above the 12% and is not recovered from the employee.
So, while the employee contributes a flat 12% to EPF, the employer’s 12% is strategically split between retirement savings (EPF), pension (EPS), and insurance (EDLI), ensuring the employee’s financial well-being in the short and long term.
Understanding how Provident Fund contributions work isn’t just about compliance—it’s about building a transparent and trustworthy relationship with your employees. When you know how the PF breakup is calculated and where each contribution goes, you’re better equipped to manage payroll, avoid errors, and support your team’s long-term financial goals.
That’s where Craze can make a difference. From accurate payroll integrations to real-time insights into workforce trends, Craze helps HR teams stay compliant and organised. Whether you're handling PF contributions, employee absences, or HR policies, Craze simplifies it all under one intelligent platform.
1. Is it mandatory for all employers to register under EPF?
If your organisation has 20 or more employees, PF registration with the EPFO is mandatory. Companies with fewer employees can opt in voluntarily, but once registered, all standard PF rules apply.
2. Can an employer deduct their share of PF from the employee’s salary?
No. The employer’s 12% PF contribution is an additional cost to the company and cannot be recovered from the employee’s salary or wages under any circumstances.
3. What happens if the employee’s salary exceeds ₹15,000?
The EPS (pension) contribution is capped at a salary of ₹15,000. So, even if an employee earns more, the employer can contribute only ₹1,249.50 (8.33% of ₹15,000) to EPS. However, EPF contributions continue as a percentage of the actual basic salary.
4. Can employees choose not to contribute to PF?
Employees earning more than ₹15,000 per month can opt out of PF at the time of joining—but only if they’ve never been a member of EPF before. Otherwise, contributions are mandatory.
5. What is a Voluntary Provident Fund (VPF), and is the employer required to match it?
VPF is an optional extension of EPF where employees can contribute more than 12% of their basic salary. The employer is not required to match VPF contributions.
6. How can employers ensure compliance with PF rules?
Employers must:
Register with the EPFO (if eligible)
Deduct and deposit PF contributions on time
File monthly ECR (Electronic Challan-cum-Return)
Keep clear payroll records and follow EPFO wage ceiling rules
Using a platform like Craze can simplify these tasks and help ensure timely and accurate compliance.
