The interest on the PF is calculated on the opening balance of every month. At the end of each year, the contribution of both the employee and employer are added monthly and the interest is calculated monthly based on the opening balance of the current month or the closing balance of the previous month, therefore the total of each year can be calculated by summing up these values.
EPF is the most important saving for retirement purposes and is governed by the EPFO department, and the calculation formula is important for the PF members to understand that goes to calculate the PF amount and interest on this accumulated Employees Provident Fund (EPF) amount.
Any organization which has more than 20 employees are required to make a contribution towards the PF of the employee, Let us in details how the EPF is calculated for the employees with new calculation Formula.
15,000 is the benchmark salary for the employees in the current scenario, Let us look at the 1st scenario in which the employee salary is below 15,000, Both the employer and the employee needs to make contribution towards their EPF, and If the sum of basic pay and dearness allowance is less than 15,000, the Employee contribution is 12% towards the provident fund while the employer contribution is divided into following parts:
- 3.67% into the employee provident fund
- 8.33% into employee pension scheme
- 0.5% into employee deposit linked insurance scheme
- 0.01% towards EDLIS administrative charges
Thus when can check the contribution of the employee and the employer using the above factors.
Now, let us look at the calculation of PF contribution in case the employee salary which includes the basic and DA is more than 15,000, In this case, there are three methods that can be used by the employer for calculating his share.
1st method – In this method, the employee contribution is 12% of the basic and dearness allowance of the employee and employer contribution is 12% of basic pay = 8.33% of 15,0000.
2nd method – In this method, the employee contribution is same while employer share is 3.67% of 15,000.
3rd Method – In this method, the employee contribution is 12% of 15,000 and the employer share is 3.67% of 15,000.
Let us look at the calculation in case the basic plus dearness allowance of the employee is 25,000.
As per method 1, the employee contribution is 12% of 25,000 which 3,000 while the employer contribution will 12% of 25,000 – 8.33% of 15,000 which is 3,000-1,250 i.e. 1,750
Therefore the employer contribution is lower 1,750 in case of above example.
One can withdraw the PF amount at the time of retirement or can withdraw the amount after fulfilling the minimum criteria for the service and for certain described purposes like construction of house, marriage, health reasons etc.