Member since August, 2011
Mostly companies adopt this practice to reduce the burden of remitting the lump sum PF contributions. But it is not a fair practice. There is a circular form EPFO which states "splitting of minimum wages for the purpose of PF contribution is not permissible".
If you split the minimum wages into different sub heads, obviously you are subtracting some amount from Basic and DA part, thus by doing so you are depriving your workers from getting benefits of EPF.
Hence my sincere advise is to don't split minimum wages.
Request professionals to throw some light on this topic
Punjab & Haryana High Court vide order dated 20.7.2011 (coppy attached) has permitted splitting of minimum wages for PF. Similarly, EPFA Tribunal vide order dated 30.11.2015 (copy attached) has permitted splitting. However, it is understood that the matter is pending before Supreme Court for final decision.
Ex. Suppose Minimum Wage = Rs.325/Day
Total Wage for 26 days = Rs.8450/Month
Basic(@35% of Gross) =2958, HRA(@30% of basic)= 887, Other Allowanses=4605
So, he pays PF for Rs.2958 which is Rs.253.
if the employee is of permanent nature with the establishment then HRA can be allowed as allowance from MW
but in case of casual employments, gross consolidated wages is minimum wages, and can not be split
in gross Basic + HRA = Mimimum Wages, anything paid over it may be taken in other allowances,
but in no case the EPF Wages can be below 50% of gross wages (subject to ceiling of 15000/- if maintained)