Industrial Relations And Labour Laws
Asst.manager -hr
Manager - Human Resource
Human Resource
+2 Others

Hi HR colleagues!
I would like to mention a situation where a company is deducting PF on the encashment amount of compensatory off at their Factory employees. As company have its internal policy of encashment of compensatory off, if not availed within next six months.
My argue is that, as per factory act, its mandatory to give a break after continues working of 48 hours, whereas by deducted PF on the encashment of compensatory off itself claim that company has not been following the act.
Kindly put the light of your comments on the above situation, as my urge is that we should not deduct the PF on encashment of compensatory off, and should have paid in cash only.
Looking forward in the anticipation of expert view on the above situation

From India, Delhi
Hello Devendra,
Your company is Deducting your PF from your Compensatory Work (CW) not on your Compensatory Off (CO), As per EPFO guidelines PF has to be deduct from your all earn wages (Basic+DA+TA) for particular months up too limits of 6500 (Basic+DA+TA) i.e. 780rs.
As per factory acts Section 52, leave should be utilized in particular month or following two months only.May be your company has got prior approval from Factory inspector for Six month.
Company can pay amount in cash or by cheque or in salary account.

From India, Pune
Dear Dev,
Kindly clear the point as raised by Ashish, whether your company is paying on Compensatory Work OR its against about the Compensatory Off..?
If it is against Compensatory Off, then is unlawful, it is ignorance of health & safety of the employee. so, employee has to take a leave for rest.

From India, Mumbai
I think the question is whether PF should be deducted from the encashment amount or not and not about the legality of accumulating or allowing the employees to encash the compensatory off earned by working on a holiday. The latter is to be dealt with separately since it has nothing to do with PF. Now to the original question, I would say that since the amount earned by an employee by way of encashing the compensatory off shall not attract PF because it is an amount earned by encashing leave and not as per terms and conditions of employment but working for additional days or hours. If it is paid to compensate the overtime worked, it should have the attributes of overtime wages which is excluded from payment of PF. If it is taken just as a leave encashment then the Supreme Court ruling in Manipal Academy of Higher Education Vs. PF Commissioner in which the Court has said that leave encashments will not attract PF contributions will apply. Therefore, encashment of leave, whether PL,CL or whatever leave is available will not attract PF.



From India, Kannur
Its against Compensatory off. only & you said very rightly that it is unlawful, and in further deducted PF on this is very strong proof of this unlawful act.
Therefore only I urge to not deduct the PF and paid it in form of cash only.

From India, Delhi
If your organization will not deduct the PF on overtime (Compensatory work ) than it will attract the penalties under section 7A. on any paid leave will attract the PF deductions, Compensatory off is not LOP. Its not a leave encashment. attaching some of previous discussion on same points.
Moderator please confirm from your end.

From India, Pune
The member has a different interpretation about section 7A, I believe. 7A is the section empowering the authorities to determine the amount due and in pursuit call for records and registers of the company.
Now PF is payable to wages payable for leaves, holidays etc. But that does not mean that you should deduct it for encashment also. If during a month, the employee had remained absent and for that day, if wages is paid (that is, if that day is a paid leave day) for that day the said amount will attract PF. But the present case is different, it is an amount claimed separately and is encashment of leave. Please go through the verdict in Manipal Academy's case also.
I also disagree with the comment " if your organisation is not deducting PF on overtime wages..." because overtime wages will not attract PF.

From India, Kannur
Dear Friends,
I also would like to share my experience on this subject.
1. An employee who is asked to do OT, he would be paid double the wages/salary.
2. OT wages/salary is paid alongwith his monthly wages/salary, showing the amount earned separately.
3. As it is shown in the wage/salary slip, it is subject to deduction for PF.
4. If an employee is asked to work on a holiday/sunday, OT is not paid but given an option to take a compensatory off, it should be either 3 days before his weekly off or the following 3 days.
5. Compensatory off is treated as paid leave.
Would like to share your comments on this and updations are most welcome. I also find out that still some of us are quoting the ceiling for PF is Rs. 6500/- whereas it has been amended nearly a week ago increasing to Rs. 15000/- Please pardon me.
Selvaraj Ponnuswamy

From India, Coimbatore
If the company where Mr. Selvaraj works deducts PF on OT wages, it is wrong practice and should be corrected.
The PF qualifying salary is still Rs 6500 and the amendment to make it Rs 15000 is in paper only but likely to be approved in a week or two, it is understood.

From India, Kannur
Hi, All are given good comments on this but in only one word we can say that, 1. PF is deducting on (Basic+DA+RA) except this, that shows shameful practice in HR field.
From India, Mumbai

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