Hi all,
Recently, I learned from this site that EPF deductions cannot be based on any basic pay that is below the minimum wage. I have also reviewed the orders of the High Court and the EPF Department regarding this issue. In my industry, there are a few employees who fall into this category.
My top management believes that we can merge any other allowance in the employee's salary to increase their basic salary without actually increasing the total salary. However, my own view is that once an allowance is fixed, it cannot be decreased. Therefore, I suggest that we should slightly increase their salary to rectify the situation.
Please guide me on this matter.
From India, Mumbai
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2Recently, I learned from this site that EPF deductions cannot be based on any basic pay that is below the minimum wage. I have also reviewed the orders of the High Court and the EPF Department regarding this issue. In my industry, there are a few employees who fall into this category.
My top management believes that we can merge any other allowance in the employee's salary to increase their basic salary without actually increasing the total salary. However, my own view is that once an allowance is fixed, it cannot be decreased. Therefore, I suggest that we should slightly increase their salary to rectify the situation.
Please guide me on this matter.
From India, Mumbai
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Dear Amarjeet,
The EPF deduction could be on basic salary less than minimum wages while the total take-home salary should be more than minimum wages, including the other allowances. You are also correct that you may not decrease the allowances, but you may increase them to correct or implement new fitments.
Regards,
Hardik
From India, Pune
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The EPF deduction could be on basic salary less than minimum wages while the total take-home salary should be more than minimum wages, including the other allowances. You are also correct that you may not decrease the allowances, but you may increase them to correct or implement new fitments.
Regards,
Hardik
From India, Pune
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It seems your management is not ready to pay the basic equivalent to minimum wages.
You have an option without making any modifications in allowances: just pay EPF contribution on Rs. 6500 (ceiling as per EPF Act), i.e., Rs. 780 on both the employer and employee sides.
From India, Pune
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You have an option without making any modifications in allowances: just pay EPF contribution on Rs. 6500 (ceiling as per EPF Act), i.e., Rs. 780 on both the employer and employee sides.
From India, Pune
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Dear Ramanuj,
Have you gone through the directions of the EPF Dept.? I am attaching the same for your ready reference. Please go through it and then answer my query. If you have already read it, kindly tell me if you still stick with your answer. I need some more replies and guidance. Thanks and regards.
From India, Mumbai
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Have you gone through the directions of the EPF Dept.? I am attaching the same for your ready reference. Please go through it and then answer my query. If you have already read it, kindly tell me if you still stick with your answer. I need some more replies and guidance. Thanks and regards.
From India, Mumbai
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Dear Kprasoon,
It's not that my company is unwilling to pay the basic equivalent to minimum wages. In fact, we are paying more than that. The only question is, can we raise the basic by decreasing/merging any other allowance into the basic, or do we have to increase the basic without touching any allowance? By doing this, we are going to increase the employees' income twice in two months because we just gave them their annual increments last month.
Regarding your suggestion about depositing Rs. 780 on the ceiling of Rs. 6500, in that case, without touching the allowances, I would prefer to deposit the EPF on the minimum wages and not on the maximum ceiling. Kindly understand my query before applying.
Regards,
Amarjeet Singh
From India, Mumbai
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It's not that my company is unwilling to pay the basic equivalent to minimum wages. In fact, we are paying more than that. The only question is, can we raise the basic by decreasing/merging any other allowance into the basic, or do we have to increase the basic without touching any allowance? By doing this, we are going to increase the employees' income twice in two months because we just gave them their annual increments last month.
Regarding your suggestion about depositing Rs. 780 on the ceiling of Rs. 6500, in that case, without touching the allowances, I would prefer to deposit the EPF on the minimum wages and not on the maximum ceiling. Kindly understand my query before applying.
Regards,
Amarjeet Singh
From India, Mumbai
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Yes, you can decrease or merge allowances. Allowances are company policy dependent, and there are no statutory guidelines to have certain allowances on a payslip. Anyway, you are not decreasing the basic or gross salary, so there is no violation of any law as such.
From India, Pune
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From India, Pune
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Amarjeet,
Your views appear correct in this instance. The easiest way for your company to change this without incurring major additional costs is to outsource the people to an agency like Manpasand Manpower. This way, whatever changes you want to make in the structure can easily be done without reducing allowances while they are on your payroll.
Regards,
Kabir Luthra
Dubai
From United States, Los Angeles
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Your views appear correct in this instance. The easiest way for your company to change this without incurring major additional costs is to outsource the people to an agency like Manpasand Manpower. This way, whatever changes you want to make in the structure can easily be done without reducing allowances while they are on your payroll.
Regards,
Kabir Luthra
Dubai
From United States, Los Angeles
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Dear AmarJeet,
We have also faced the same issue in the company regarding the minimum wages, not only for Karnataka but for all locations across India.
I agree with other comments that you can add other allowances to the B+DA component as the other components are only tax savings/exemption components.
But please understand one thing, if you increase the B+DA, then automatically employees' take-home pay will be reduced as we calculate the PF Ee & Er contributions based on the same.
As a part of market/statutory correction, you can always communicate/convince your management with the concerns of your finance team (which might be the CFO or any senior person in charge of finance) to understand the feasibility of the company's financial status for better comprehension and proposal to the management.
I have conducted a comparative study with the existing pay/CTC structure and the new pay/CTC structure in accordance with the Minimum wages among the group of companies and have proposed the necessary adjustments for the management to invest as part of the statutory correction.
The management will surely appreciate learning about this and also to avoid any issues with statutory bodies.
I have successfully implemented the same among the group of companies.
I hope you can also achieve the same and wish you good luck with this assignment.
For any clarifications, feel free to get in touch with me.
Regards,
Deepak S
From India, Bangalore
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We have also faced the same issue in the company regarding the minimum wages, not only for Karnataka but for all locations across India.
I agree with other comments that you can add other allowances to the B+DA component as the other components are only tax savings/exemption components.
But please understand one thing, if you increase the B+DA, then automatically employees' take-home pay will be reduced as we calculate the PF Ee & Er contributions based on the same.
As a part of market/statutory correction, you can always communicate/convince your management with the concerns of your finance team (which might be the CFO or any senior person in charge of finance) to understand the feasibility of the company's financial status for better comprehension and proposal to the management.
I have conducted a comparative study with the existing pay/CTC structure and the new pay/CTC structure in accordance with the Minimum wages among the group of companies and have proposed the necessary adjustments for the management to invest as part of the statutory correction.
The management will surely appreciate learning about this and also to avoid any issues with statutory bodies.
I have successfully implemented the same among the group of companies.
I hope you can also achieve the same and wish you good luck with this assignment.
For any clarifications, feel free to get in touch with me.
Regards,
Deepak S
From India, Bangalore
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Can someone kindly provide me the recent Order ofPunjab & Haryana High Court on splitting of minimum Wages. Regards Satya
From India, Gurgaon
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From India, Gurgaon
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If I pay a salary of Rs. 7000/- per month to my new employees who are not existing members of EPF and have opted in writing to not have PF deducted from their salary, can I design a pay structure keeping the basic above Rs. 6500/- per month, which is the statutory limit for PF deduction?
Kindly comment with relevant laws/rulings.
Regards,
Satya
From India, Gurgaon
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Kindly comment with relevant laws/rulings.
Regards,
Satya
From India, Gurgaon
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Dear Mr. Amarjeet Singh,
The question raised by you in one of your previous posts is, "The only question is that can we raise basic by decreasing/merging any other allowance in basic or we have to increase the basic without touching any allowance." An answer to this question has to be found with reference to the provisions of Section 9A of the Industrial Disputes Act, 1947. According to this section, any change in the conditions of service mentioned in the Fourth Schedule to the Industrial Disputes Act and applicable to workmen can be done only after giving them 21 days' notice as contemplated by the Section. Item 1 in this Schedule relates to wages, and item 3 in the schedule relates to compensatory and other allowances. Therefore, if you decide to make a downward revision of either the basic wage or any other allowances in respect of your employees who are workmen as defined under the Industrial Disputes Act, you have to follow the procedure prescribed under Section 9A of that Act.
With regards,
From India, Madras
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The question raised by you in one of your previous posts is, "The only question is that can we raise basic by decreasing/merging any other allowance in basic or we have to increase the basic without touching any allowance." An answer to this question has to be found with reference to the provisions of Section 9A of the Industrial Disputes Act, 1947. According to this section, any change in the conditions of service mentioned in the Fourth Schedule to the Industrial Disputes Act and applicable to workmen can be done only after giving them 21 days' notice as contemplated by the Section. Item 1 in this Schedule relates to wages, and item 3 in the schedule relates to compensatory and other allowances. Therefore, if you decide to make a downward revision of either the basic wage or any other allowances in respect of your employees who are workmen as defined under the Industrial Disputes Act, you have to follow the procedure prescribed under Section 9A of that Act.
With regards,
From India, Madras
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As far as basic salary is concerned on which PF is calculated, Section 12 of the EPF and MP Act, 1952, prohibits a reduction in basic salary. Section 12 says, "No employer to which the PF Act applies shall, by reason only of his liability for the payment of any contribution to the Fund, reduce whether directly or indirectly the wages of any employee."
Regards,
Kamal
From India, Pune
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Regards,
Kamal
From India, Pune
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You can increase the basic by merging the allowance. You can pass an amendment in the compensation policy for merging the allowance or rearrange the salary structure, but don't try to reduce the basic. You can increase it, and any allowance may decrease in percentage and be common for all in the specific category.
Even if I'm satisfied with Deepak, you can conduct such a comparison.
From India, Gurgaon
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Even if I'm satisfied with Deepak, you can conduct such a comparison.
From India, Gurgaon
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greetings all sir i newly joined as a hr manager. i dont know anything because that is my uncles company at karnataka please advice me what to do and what is my duties
From India, Bangalore
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From India, Bangalore
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Dear all,
We inspected our company on 1/6/09 and covered from this date, but contributions started after a new person joined, receiving less than 6500 on 1/7/10. Before that, nobody was receiving less than the prescribed limit. Now, the inspector is to deposit contributions from the coverage date. What should we clarify as soon as possible?
Thanks,
Dhanesh
From India, Pune
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We inspected our company on 1/6/09 and covered from this date, but contributions started after a new person joined, receiving less than 6500 on 1/7/10. Before that, nobody was receiving less than the prescribed limit. Now, the inspector is to deposit contributions from the coverage date. What should we clarify as soon as possible?
Thanks,
Dhanesh
From India, Pune
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Dear All,
Should social security contributions be based on minimum wages? The Employees' Provident Fund Organisation of India ("EPFO"), which manages India's largest social security fund for employees, has recently clarified to its officers that employers are required to make provident fund ("PF") contributions on the minimum wages. The EPFO has issued an inter-department clarification on May 23, 2011 ("Clarification") indicating that splitting of minimum wages for the purposes of PF contributions is not permissible. This Clarification, which has been issued in view of the lack of a uniform approach followed by the PF authorities in different states, seems to be an attempt by the labor department to settle the ongoing ambiguity with respect to the calculation of provident fund ("PF") contributions.
Background: According to the extant provisions of law, to the extent the Employees' Provident Fund and Miscellaneous Provisions Act, 1952 ("EPF Act") applies to an establishment, the employer is required to make PF contributions for its eligible employees (whether employed directly or through a contractor) on the amount of basic wages (base salary), dearness allowance (which is like a cash allowance paid to an employee on account of inflation), and retaining allowance. While the EPF Act defines 'basic wages', it does not stipulate that basic wages need to be equivalent to the minimum wages under the Minimum Wages Act, 1948 ("MWA"). Further, it is a common practice to structure the compensation package to include several allowances and perquisites, some of which provide tax benefits. As a result, for employees drawing minimum wages, the basic wages would typically be an amount lower than the minimum wage rates prescribed by the government under the MWA. This would therefore reduce the PF and pension contributions by the employer as they are linked to the amount of basic wages. The Clarification states that the minimum wage is the lowest permitted wage legally required to be paid by an employer to its worker and therefore 'basic wages' (for the purpose of PF calculation) should not be lower than the minimum wage (under the MWA). As per the Clarification, employers who do not pay minimum wages to their employees but claim to pay certain additional allowances to them may be liable for punishment under the EPF Act as well as under the Indian Penal Code. Further, the Clarification also states that any employment contract between the employer and the employee which contains a stipulation to the effect that the minimum wages paid or payable to an employee is bifurcated to reduce the liability of the employer under the EPF Act shall be treated as void ab initio. Since the minimum wage is calculated by the state governments after due consideration of the prevailing market conditions and other prescribed factors, splitting, segregation, or re-classification of the minimum wage should not be permissible. The Clarification places reliance on the judgment of the Division Bench of the Karnataka High Court, in the case of M/s Group 4 Securities Guarding Ltd., Bangalore Vs. Regional Provident Fund Commissioner and Others (reported as 2004 LIC, Page 2075), which specifies that the PF Commissioner may exercise his powers to inquire whether the wages fixed are a subterfuge to avoid its contribution to the PF. The court took the view in that case that employers splitting up basic wages under several heads and allowances would amount to a subterfuge to avoid PF contribution. However, it is pertinent to note that while the MWA provides for a definition of wages, it does not contain a definition of basic wages.
Analysis: The Clarification seems to be in the interest of the employee community in general, since it is intended to ensure that the employer makes a certain level of PF contributions for its eligible employees and provides necessary social security. The contributions would help ensure adequate amounts in the employees' provident fund account and provide sufficient pension benefits to the employees and their family members. The Clarification should help curb the malpractices adopted by some employers who make a very low amount of PF contribution as a result of the low basic salary, which also affects the benefits under certain other labor laws where the benefits are linked to the basic salary. However, the stand taken by the EPFO and the position stated in the Clarification does not appear to be consistent with the law and may be tested in a court of law, leading to more litigation on this issue. This is in view of some of the points as mentioned below: a. The EPF Act, being a standalone law, does not prescribe that the basic wages should be equal to the minimum wages. Moreover, if that was indeed the intention of the legislature, instead of providing a separate definition of basic wages under the EPF Act, it would have cross-referred to the definition of wages under the MWA, since the EPF Act was enacted much after the enactment of the MWA. b. The EPF Act is silent on the issue with regard to the percentage of the salary that may be deemed to be basic wages. As a matter of fact, there is no statute in India that prescribes the percentage of basic wages and/or of any allowance. Accordingly, an employer can under the employment contract indicate the amount of basic wages (besides the other allowances) that shall be payable, as long as the employer ensures that the employee receives at least the minimum amount of wages as prescribed under the MWA. c. The MWA does not contain a separate definition of basic wages. In fact, while the definition of wages under the MWA includes House Rent Allowance ("HRA"), the definition of basic wages under the EPF Act specifically excludes HRA - therefore there does not appear to be any correlation between 'wages' under the MWA and 'basic wages' under the EPF Act. d. The latest judgment on this subject, being that of the Punjab and Haryana High Court in the case of Assistant Provident Fund Commissioner, Gurgaon vs. G4S Security Services (India) Ltd & Anr. (2011 LLR 316 (P&H HC) has permitted the employer to split the minimum wages for the purposes of PF contributions. Unless another court decision in the future overturns this judgment, this judgment shall continue to be the law on this subject. This judgment also makes necessary references to some of the earlier judgments as have been referred to in the Clarification. It is surprising to note that this judgment has not been referred to in the Clarification. Unless there is further clarity issued by the EPFO on this issue or unless this matter is settled by the courts, this Clarification is likely to lead to more labor law litigation in India since the PF authorities, relying on the Clarification, are likely to take an aggressive stand.
The Clarification refers to the following judgments: (i) the RPFC, Punjab vs. Shibu Metal Works 1965 (1) LLJ 473, (ii) Crown Aluminum Works vs. Workers Union (1958) Vol. I LLJ, Page 1, (iii) Unichoyi vs. State of Kerala (1961 Vol.I Page 631), (iv) Kamani Metals & Allys Ltd. vs. Their Work Men (1967 Vol. II-55. The Appellant Company had bifurcated the wages into several allowances and that the basic pay component was a fraction of the statutory minimum wage stipulated.
From India, Surat
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Should social security contributions be based on minimum wages? The Employees' Provident Fund Organisation of India ("EPFO"), which manages India's largest social security fund for employees, has recently clarified to its officers that employers are required to make provident fund ("PF") contributions on the minimum wages. The EPFO has issued an inter-department clarification on May 23, 2011 ("Clarification") indicating that splitting of minimum wages for the purposes of PF contributions is not permissible. This Clarification, which has been issued in view of the lack of a uniform approach followed by the PF authorities in different states, seems to be an attempt by the labor department to settle the ongoing ambiguity with respect to the calculation of provident fund ("PF") contributions.
Background: According to the extant provisions of law, to the extent the Employees' Provident Fund and Miscellaneous Provisions Act, 1952 ("EPF Act") applies to an establishment, the employer is required to make PF contributions for its eligible employees (whether employed directly or through a contractor) on the amount of basic wages (base salary), dearness allowance (which is like a cash allowance paid to an employee on account of inflation), and retaining allowance. While the EPF Act defines 'basic wages', it does not stipulate that basic wages need to be equivalent to the minimum wages under the Minimum Wages Act, 1948 ("MWA"). Further, it is a common practice to structure the compensation package to include several allowances and perquisites, some of which provide tax benefits. As a result, for employees drawing minimum wages, the basic wages would typically be an amount lower than the minimum wage rates prescribed by the government under the MWA. This would therefore reduce the PF and pension contributions by the employer as they are linked to the amount of basic wages. The Clarification states that the minimum wage is the lowest permitted wage legally required to be paid by an employer to its worker and therefore 'basic wages' (for the purpose of PF calculation) should not be lower than the minimum wage (under the MWA). As per the Clarification, employers who do not pay minimum wages to their employees but claim to pay certain additional allowances to them may be liable for punishment under the EPF Act as well as under the Indian Penal Code. Further, the Clarification also states that any employment contract between the employer and the employee which contains a stipulation to the effect that the minimum wages paid or payable to an employee is bifurcated to reduce the liability of the employer under the EPF Act shall be treated as void ab initio. Since the minimum wage is calculated by the state governments after due consideration of the prevailing market conditions and other prescribed factors, splitting, segregation, or re-classification of the minimum wage should not be permissible. The Clarification places reliance on the judgment of the Division Bench of the Karnataka High Court, in the case of M/s Group 4 Securities Guarding Ltd., Bangalore Vs. Regional Provident Fund Commissioner and Others (reported as 2004 LIC, Page 2075), which specifies that the PF Commissioner may exercise his powers to inquire whether the wages fixed are a subterfuge to avoid its contribution to the PF. The court took the view in that case that employers splitting up basic wages under several heads and allowances would amount to a subterfuge to avoid PF contribution. However, it is pertinent to note that while the MWA provides for a definition of wages, it does not contain a definition of basic wages.
Analysis: The Clarification seems to be in the interest of the employee community in general, since it is intended to ensure that the employer makes a certain level of PF contributions for its eligible employees and provides necessary social security. The contributions would help ensure adequate amounts in the employees' provident fund account and provide sufficient pension benefits to the employees and their family members. The Clarification should help curb the malpractices adopted by some employers who make a very low amount of PF contribution as a result of the low basic salary, which also affects the benefits under certain other labor laws where the benefits are linked to the basic salary. However, the stand taken by the EPFO and the position stated in the Clarification does not appear to be consistent with the law and may be tested in a court of law, leading to more litigation on this issue. This is in view of some of the points as mentioned below: a. The EPF Act, being a standalone law, does not prescribe that the basic wages should be equal to the minimum wages. Moreover, if that was indeed the intention of the legislature, instead of providing a separate definition of basic wages under the EPF Act, it would have cross-referred to the definition of wages under the MWA, since the EPF Act was enacted much after the enactment of the MWA. b. The EPF Act is silent on the issue with regard to the percentage of the salary that may be deemed to be basic wages. As a matter of fact, there is no statute in India that prescribes the percentage of basic wages and/or of any allowance. Accordingly, an employer can under the employment contract indicate the amount of basic wages (besides the other allowances) that shall be payable, as long as the employer ensures that the employee receives at least the minimum amount of wages as prescribed under the MWA. c. The MWA does not contain a separate definition of basic wages. In fact, while the definition of wages under the MWA includes House Rent Allowance ("HRA"), the definition of basic wages under the EPF Act specifically excludes HRA - therefore there does not appear to be any correlation between 'wages' under the MWA and 'basic wages' under the EPF Act. d. The latest judgment on this subject, being that of the Punjab and Haryana High Court in the case of Assistant Provident Fund Commissioner, Gurgaon vs. G4S Security Services (India) Ltd & Anr. (2011 LLR 316 (P&H HC) has permitted the employer to split the minimum wages for the purposes of PF contributions. Unless another court decision in the future overturns this judgment, this judgment shall continue to be the law on this subject. This judgment also makes necessary references to some of the earlier judgments as have been referred to in the Clarification. It is surprising to note that this judgment has not been referred to in the Clarification. Unless there is further clarity issued by the EPFO on this issue or unless this matter is settled by the courts, this Clarification is likely to lead to more labor law litigation in India since the PF authorities, relying on the Clarification, are likely to take an aggressive stand.
The Clarification refers to the following judgments: (i) the RPFC, Punjab vs. Shibu Metal Works 1965 (1) LLJ 473, (ii) Crown Aluminum Works vs. Workers Union (1958) Vol. I LLJ, Page 1, (iii) Unichoyi vs. State of Kerala (1961 Vol.I Page 631), (iv) Kamani Metals & Allys Ltd. vs. Their Work Men (1967 Vol. II-55. The Appellant Company had bifurcated the wages into several allowances and that the basic pay component was a fraction of the statutory minimum wage stipulated.
From India, Surat
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Dear Mr.Arihant Can you,if possible, please upload the judgments referred to in your post? With regards
From India, Madras
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From India, Madras
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Hi Amarjeet, First note if salary would be less than minimum wages, it is against the minimum wages act.
From India, Delhi
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From India, Delhi
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Hi Satya,
How do you calculate Rs. 7000/- per month divided into these heads: Basic, DA, HRA, Conv, LTA, etc.? There is no possibility to allocate Rs. 7000 in the Basic head to avoid PF deductions for both the employee and the employer.
From India, Delhi
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How do you calculate Rs. 7000/- per month divided into these heads: Basic, DA, HRA, Conv, LTA, etc.? There is no possibility to allocate Rs. 7000 in the Basic head to avoid PF deductions for both the employee and the employer.
From India, Delhi
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Hi Amarjeet,
My phone number is +971 50 725 8083. Alternatively, I will be in Mumbai on Monday and will be available to speak on +91 9987 546 153. You can also email me at KL@manpasandmanpower.com.
Regards,
Kabir Luthra
From United States, Los Angeles
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My phone number is +971 50 725 8083. Alternatively, I will be in Mumbai on Monday and will be available to speak on +91 9987 546 153. You can also email me at KL@manpasandmanpower.com.
Regards,
Kabir Luthra
From United States, Los Angeles
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Dear Vipul,
Thanks for your inputs. Could you kindly suggest how to prevent me keeping the basic at Rs. 6600/- where the total salary is Rs. 7000/-? The essence is that I am paying far above the Minimum Wages and the prescribed limit of 6500 for providing an option to the employee. It is not about saving PF but rather utilizing the minimum prescribed limit while allowing the employee to manage his finance on his own. Otherwise, there is no use in providing the option to employees with basic above 6500/- to contribute to PF or not.
Now the questions are:
1. Is there any regulation which mandates any minimum % of the gross salary to be the basic salary?
2. Is it necessary to split the salary into heads like Basic, DA, HRA, Conv, LTA...etc?
3. Does any law prevent paying a consolidated salary which is above the minimum prescribed limits?
Would appreciate comments with relevant regulations.
Regards,
Satya
# 9818066620
From India, Gurgaon
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Thanks for your inputs. Could you kindly suggest how to prevent me keeping the basic at Rs. 6600/- where the total salary is Rs. 7000/-? The essence is that I am paying far above the Minimum Wages and the prescribed limit of 6500 for providing an option to the employee. It is not about saving PF but rather utilizing the minimum prescribed limit while allowing the employee to manage his finance on his own. Otherwise, there is no use in providing the option to employees with basic above 6500/- to contribute to PF or not.
Now the questions are:
1. Is there any regulation which mandates any minimum % of the gross salary to be the basic salary?
2. Is it necessary to split the salary into heads like Basic, DA, HRA, Conv, LTA...etc?
3. Does any law prevent paying a consolidated salary which is above the minimum prescribed limits?
Would appreciate comments with relevant regulations.
Regards,
Satya
# 9818066620
From India, Gurgaon
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Satya,
There are no explicit laws that govern this area, only people's deductions from what they read. The only point that has some clarity, that too only after the PF department has taken up cases against some large establishments, is that the basic salary should not be less than the state minimum wages.
Now, this causes some additional confusion in the sense that in many states, minimum wages are already accounted for as Basic + (V)DA. Can you then add another DA on top of this - is this also PF-able?
In terms of allowances, you can pay whatever you want - call it dancing allowance, uniform washing allowance, or haircut allowance - if you pay it each month, the PF/ESI inspectors will want you to deposit money against it. There are some allowances like CCA and Washing Allowance that don't attract PF as of date - but these keep changing.
All in all, there is very little clarity on these issues. The labor department says one thing, the factory inspector another, the PF people a third, and ESI a fourth. For the moment, it is safe to assume the following to stay out of trouble:
1. Keep your basic at least equivalent to minimum wages and pay PF on this amount.
2. For people with salaries over 6,500, keep 50% as basic (ensure it is over minimum wages) and the balance as allowances.
Regards,
Kabir Luthra
From United States, Los Angeles
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There are no explicit laws that govern this area, only people's deductions from what they read. The only point that has some clarity, that too only after the PF department has taken up cases against some large establishments, is that the basic salary should not be less than the state minimum wages.
Now, this causes some additional confusion in the sense that in many states, minimum wages are already accounted for as Basic + (V)DA. Can you then add another DA on top of this - is this also PF-able?
In terms of allowances, you can pay whatever you want - call it dancing allowance, uniform washing allowance, or haircut allowance - if you pay it each month, the PF/ESI inspectors will want you to deposit money against it. There are some allowances like CCA and Washing Allowance that don't attract PF as of date - but these keep changing.
All in all, there is very little clarity on these issues. The labor department says one thing, the factory inspector another, the PF people a third, and ESI a fourth. For the moment, it is safe to assume the following to stay out of trouble:
1. Keep your basic at least equivalent to minimum wages and pay PF on this amount.
2. For people with salaries over 6,500, keep 50% as basic (ensure it is over minimum wages) and the balance as allowances.
Regards,
Kabir Luthra
From United States, Los Angeles
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Hi Hardik,
Your below 2-liner has given me the clearest understanding of a topic that seems to be a confusion between "Basic vs Minimum Wages vs EPF deduction". I'm only hoping your facts are from the right source because I have understood your statement perfectly. Thanks again... Lionel
From India, Mumbai
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Your below 2-liner has given me the clearest understanding of a topic that seems to be a confusion between "Basic vs Minimum Wages vs EPF deduction". I'm only hoping your facts are from the right source because I have understood your statement perfectly. Thanks again... Lionel
From India, Mumbai
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Hi Lionel,
I wish the 2-liner of Hardik had been from a right source. I am not trying to make the topic confusing, but the truth is that as per the guidelines of the EPF Dept., which I am attaching herewith, the deduction of the P.F. cannot be less than the minimum wage. As far as the carry-home is concerned, it can obviously be more than the minimum wages, no doubt about that. Please go through the Departmental Orders.
From India, Mumbai
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I wish the 2-liner of Hardik had been from a right source. I am not trying to make the topic confusing, but the truth is that as per the guidelines of the EPF Dept., which I am attaching herewith, the deduction of the P.F. cannot be less than the minimum wage. As far as the carry-home is concerned, it can obviously be more than the minimum wages, no doubt about that. Please go through the Departmental Orders.
From India, Mumbai
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Hi Lionel, It was correct nevertheless there are two recent amendments appending here for your perusal. — Regards, Hardik
From India, Pune
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From India, Pune
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From India, Lucknow
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From India, Lucknow
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Minimum Wage in Maharashtra DA Special allowance w.e.f January 1, 2020 to June 30, 2020.pdf