rajudvk Started The Discussion:
Please clarify can we split minimum wage and pay the PF contribution on splitted wages. For example minimum wage is 3500/- can we split 2000 as a PF wage and pay the contribution. If not is there any section in PF Act shows it is not permissable.
PF should be calculated on the Basic Wages+ Dearness Allowance. There is no reference to minimum wages, but the same can be referred to when a question arises as to contribution. In order to reduce burden of PF contribution, basic wages should be brought to minimum and DA should be calculated as percentage of basic or the Variable DA as applicable in the respective industry of the concerned state.
I also could not find anything in labour law that how to break down the minimum wages into different components so that "basic" can be determined for PF calculation purpose.
However, I know two examples in Delhi (Cinema Halls and Petrol Pumps) where minimum wage is not broken donw into different components and whole amount of minimum wages is taken into consideration for calculation of PF.
My understanding is that "basic" or "basic plus DA" must not be less than minimum wages. Otherwise, employer will alwasy keep "basic" to minumu level (with no lower limit) to avaoid higher PF liability on "basic".
Dear Mr. Surendra Singh,
Minimum Wages is a state subject though the Minimum Wages Act is a central Act. Therefore, the minimum wages applicable to each state and each industry will be different. Usually it comprises of a basic rate of wages and Dearness allowance variable according to changes in the cost of living index. For the purpose of Provident Fund contribution, the sum of these two, ie, basic wage and DA, shall be taken. The Petrol pump employees may be having a minimum wages structure of basic wages and dearness allowance. That is why the sum of these two have been taken as salary for PF.
Regarding minimum wages, your understanding is right. The total amount of salary paid by whatever name given for each head, viz, special allowance, tea allowance, travelling allowance or house rent allowance, should not be less than the minimum wages fixed.
I would like to share my experiience in PF Audit done by authorities, they checked weather the Basic salary is 50 % ( Half ) of the gross salary offered to the employee,i.e for a Gross salary of 10,000/- they were ok with 50 % Amount as basic.
Though it is nothing mentioned in the PF manual / act but as a matter of practise / internal policy they make objections on such contributions where the basic is less then 50 % of gross salary, as it is assumed for a lesser contribution to the PF dept delebrately
Minimum Wages Act is a central Act but the state govts are empowered to decide the quantum of minimum wages applicable for each type of industry.This amount is also revised periodically based on the recommnendations of the advisory committe appointed for the specific task.
The reasonable expectations from the PF dept is that the mgmts should fix atleast 50% of the basic salary as qualifying for PF deduction.
There is no obligation on the part of the employer to give the salary in various nomenclature as long as the total quantum sitpulated under the minimum wages is paid to the employee.
In one of the cases Supreme Court has given a clear message that the industries who are not paying the minimum wages have no right to exist.
Dear Mr. Vijay,
As per the definition under Minimum wages Act - 1948, - Wages means all remuneration capable of being expressed in terms of money, which would be payable to a person employed in respect of his employment or work done in his employment and includes HOUSE RENT ALLOWANCE (w.e.f. 17/09/1957) but does not include - Gratuity, PF/ESI contribution, travelling allowance or concession, value of any facility or service extended to the employee.
Technically minimum wages can be split in to BASIC +DA+HRA.
But as a general practice it is understood as Basic +DA.
The enforcement authorities under Minimum Wages are concerned only that the prevailing min. wages should be paid to an employee., The employer can pay the min. wages through any nomeclature as a head of wages, but it should not be less than existing min. wages in the respective State.
Since your question has two parts one is, minimum wages can be split and second in relation of P.F. contribution on minimum wages.
I would like to share my profession experience that there is no reference of Minimum wages in the definition of wages - under EPF & MP Act -1952, that is only BASIC +DA, any retaining allowane and value of food concession. No internal circular in the PF Deptt. exist regarding the enfocement of PF contribution on min. wages.
The P.F. authorities are not empowered to enforce minimum wages or ask for contribution on minimum wages.
I understand that during the inspection enforcement officer ask such silly question, even mention in the inspection note regarding contribution on minimum wages.
But we as HR person should present our case before RPFC with documentary evidence that payment of PF Contribution has no relation with minimum wages. I have presented the same before RPFC Delhi (Mr. Sourbh Jagati) in relation of such note mentioned an enforcement officer of Gurgaon region for our Unit at IMT Manesar.
RPFC considered our objection and droped the matter.
Moreover; There is nothing in Labour Laws, that Basic or Basic+ DA should be at par the minimum wages or 50% of the Gross salary, these are all the industrial practices.
Deliveratly keeping Basic of an employee at minimum level so that PF. contibution become less is a unfair labour practice. The salary structure should be realistic and reasobale according to the category and level of an employee in the organisation.
Finally P.F. authority are empowered to enforce the PF Act, not the Min. Wages Act.
Mohd. Arif Khan
Mr. Mohd. Arif Khan has explained everything in detail. If the PF authorities have verified your documents and advised you to show atleast 50% of the total salary as basic salary, it is not after any authority given to them under the Minimum Wages Act but authority as enforcement officer to determine whether less salary has been paid just to avoid payment of higher contribution by the employer. Since minimum wages is statutory, they ask whether you have been paying at least minimum wages or not. That's all.
Hello Mr. Madhu,
In our company, basic is 40% of gross. And 12% of basic is liable for PF contribution. Now we want to bring about a change in policy. We would like to continue with 40% of gross being basic. But when basic exceeds 6500Rs, we want to restrict PF contribution to only 6500. For eg. if an employee's gross salary is Rs. 20000, his basic would be Rs. 8000. Can we pay PF for 6500 only while continuing to maintain the basic as 8000? Our PF consultant says that if 8000 is given as basic, then PF deduction should be done on 8000 only. Also, he says it would not be fair for some employees to be receiving PF on the entire basic, and for some to be restricted to only 6500. But my point is when a company wishes to revise its policy, the new employee that will be joining after this policy comes into effect will be told about it and he should not compare his contribution to those others who are receiving the contribution on the full amount of basic because they joined before the new policy came into effect. What are your thoughts on this? If we implement this, are we non-complying to any laws of PF?
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