Why your PF deduction looks different this year

If your CTC did not change but your PF deduction did, the new Labour Codes are the reason. India brought all four Labour Codes into force on 21 November 2025, replacing 29 central labour laws, and most employers moved their payroll to the new framework from April 2026.

The single biggest driver is a new, uniform definition of “wages”. Because PF is calculated as a percentage of wages, any salary structure that kept Basic artificially low now needs a second look. This guide explains what changed, what did not, and what employers in Chennai, Mumbai and across India should do next.

PF basics: the rates have not changed

The contribution rates are the same as before. Both employee and employer contribute 12% of PF wages (Basic + DA, now read with the new wage definition), and the employer’s share is split across three schemes.

Maximums apply where contributions are restricted to the ceiling. Employers who already contribute on actual (higher) wages continue to do so. Source: SGCMS summary of Notification S.O. 5109(E).

PF is mandatory on wages up to the statutory wage ceiling, and contributing on wages above it remains optional for both sides. Reduced rates of 10% continue to apply to notified categories of establishments. The ceiling itself is the other big change this year, covered next.

What is new: two changes that move your PF deduction

1. The PF wage ceiling is now ₹25,000

The Ministry of Labour and Employment notified ₹25,000 a month as the EPF wage ceiling through Notification S.O. 5109(E), effective 17 September 2026. This is the first revision since September 2014, when the ceiling went from ₹6,500 to ₹15,000.

• • Newly covered employees: anyone with PF wages between ₹15,001 and ₹25,000 who was not a PF member must now be enrolled, with EPF, EPS and EDLI from 17 September 2026.

• • Existing members capped at ₹15,000: contributions now run on up to ₹25,000. The employee share rises by up to ₹1,200 a month.

• • Members already contributing on full Basic + DA above ₹25,000: total PF outgo is unchanged, but more of the employer share moves to EPS (up to ₹2,083 instead of ₹1,250).

• • ESIC is not affected: its wage ceiling stays at ₹21,000.

September 2026 is a split month: 1 to 16 September on the ₹15,000 ceiling and 17 to 30 September on ₹25,000. October 2026 is the first full month on the new ceiling.

2. The 50% wage rule under the Code on Wages

Since 21 November 2025, “wages” means Basic + DA + retaining allowance. Excluded components such as HRA, conveyance and overtime can make up at most 50% of total remuneration. Any excess is added back to wages for statutory purposes, including PF and gratuity.

This does not mean Basic must be exactly 50% of CTC. As King Stubb & Kasiva point out, the test runs on the statutory definition of wages, component by component, and CTC is not the same as wages. The Code on Wages (Central) Rules, 2026 were notified on 8 May 2026.

The Labour Ministry has also clarified that take-home pay need not fall when PF is deducted on the statutory ceiling, because contributions above the ceiling remain voluntary.

Worked example: how much more PF comes out of salary

For a mid-level employee whose PF was capped at ₹15,000, the employee deduction rises from ₹1,800 to ₹3,000 a month, and the employer pays a matching extra ₹1,200 plus EDLI and admin charges.

Three illustrative existing PF members, monthly figures, with contributions restricted to the statutory ceiling:

How the 50% rule works for the executive: allowances of ₹12,000 exceed half of ₹22,000 (₹11,000) by ₹1,000, so ₹1,000 is added back and PF wages become ₹11,000.

If the manager’s employer contributes on actual wages instead of the ceiling, the 50% rule lifts PF wages from ₹30,000 to ₹50,000 and the employee share from ₹3,600 to ₹6,000.

These figures are simplified for illustration. Actual PF wages depend on how each component is classified under the Codes, so run every salary structure through a component-by-component check before changing payroll.

Other PF changes every payroll team should know

The ceiling hike and the 50% rule sit on top of a year of PF reforms. The key ones, newest first:

Employers hiring new staff can also look at the Pradhan Mantri Viksit Bharat Rozgar Yojana (PMVBRY), which offers an employer incentive of up to ₹3,000 per eligible additional employee a month, subject to scheme conditions

Employer checklist for the new PF rules

The September 2026 ECR, including the pro-rata amounts from 17 September, is due by 15 October 2026. Use this list to get there and stay compliant after.

• • Pull a list of every employee with PF wages between ₹15,001 and ₹25,000 who is not a PF member

• • Generate or link UAN for newly covered staff (no duplicate UANs), complete Aadhaar, PAN and bank KYC, and file e-nomination

• • Move existing members capped at ₹15,000 to the ₹25,000 ceiling, with a split calculation for September 2026

• • Re-split the employer share for staff already contributing on actual wages: more to EPS, less to EPF

• • Audit every salary structure against the 50% wage rule, component by component

• • Update payroll software, offer letter templates, CTC structures and PF policies

• • Check that contractors are enrolling and remitting PF for contract staff in the new band

• • Tell affected employees why take-home is lower and how their PF and pension benefit grows

• • Check PMVBRY eligibility for new hires

Late or short remittance attracts interest and damages, and wage-related non-compliance under the Code on Wages can draw fines from ₹50,000 up to ₹10 lakh. Remember too: once a member, always a member. Staff enrolled now stay in PF even if their wages later cross ₹25,000.

Get your PF compliance right with SBS HR

The new PF rules change more than one number on the payslip. They touch salary structures, enrolment, ECR filing, contractor oversight and employee communication, all at once.

SBS HR handles payroll processing and compliance services for businesses across India. Every payroll run goes through our 7-step Maker-Checker verification, runs on a mutually agreed payroll calendar, and is delivered in password-protected files, with 24/7 weekend support by call and email and a defined escalation matrix.

Want a quick check of your salary structures against the 50% rule and the ₹25,000 ceiling? Talk to the SBS HR team today.

This article is for general information and is not legal advice. Rules may change through further EPFO circulars and state notifications.