The rule-book says that if you employ 20 or more people, you need to register with the EPFO (Employee's Provident Fund Organization) and make a monthly contribution. The registration process is a straight-foward on paper, but takes some effort, official & unofficial fees to get it done - there are several ESI/PF/Labour law consultants in each city available who can help you. A regular accountant will not be able to handle this process easily as it involves extensive networking and work with local government offices. Most accountants have a partner who is a ESI/PF/Labour law specialist. Getting the registration done takes about 2 months, involves submission of several documents related to your company/ directors/ proprietors/ partners etc., and will cost you about 25K-30K totally including all fees. This amount may vary based on the location, how old your company is and how long you have delayed getting the registration done. The rule-book says that you need to register in the month when you employ 20 people or more. PF registration is a one-way street. Even if your employee size reduces after the registration, you will need to comply with PF regulations and make monthly contributions.
The amount payable is two fold - an employee contribution of 12% of the respective employee's salary (Basic + DA) and an equivalent employer contribution plus an small additional amount for EPF related insurance (EDLI - employee disability & life insurance).
If an employee's basic salary +DA (Dearness allownace) is INR 6,500 or below, then making a PF contribution is mandatory. If the basic + DA is more than 6,500, then the employee has an option to opt out of PF. Please note that this 6,500 limit has now been proposed to be increased to 15,000 (the bill has been passed by the Modi government, but the PF department has not yet issued an notice - so at this time the 6,500 rule still holds, but is set to be changed very soon). The above limit increase is very significant for the restaurant business since the bulk of the staff employed in this industry will be in the 8-10K salary range currently. With the 6,500 limit, it was possible to exclude several of the employees from PF, thus reducing the financial burden on both the employer and the employee side.
In practice, employers typically deduct the employee contribution from the employee's salary and the employer's contribution is additional. i.e. If an employee's negotiated salary is 8,000 and he/she opts for PF, then the contributions would be made as follows:
Gross Salary: 8,000
Basic + DA: 6,500
Employee contribution to PF: 12% of 6,500 = 780
Employer Contribution to PF: 12% of 6,500 = 780
Salary payable to employee: 8,000 - 780 = 7,220
Additional PF amount payable by employer: 780
Note: There are additional deductions for ESI etc. I have restricted the deductions only to illustrate the PF contributions. The real salary payable to the employee would include other deductions.
So technically the employee's salary is 8,780 and not 8,000. This industry is not yet fully used to the CTC model widely adopted. i.e. at the time of joining, the employee would be told that his/her salary is 8,780 and both the contributions deducted from this amount. This is the model adopted by the larger players - Dominos, Pizza Hut, McDonald's etc. The larger players also typically do not provide an option for employees to opt out of PF - i.e. it is mandatory.
