Madhu.T.K
Industrial Relations And Labour Laws
Vidyadhar Bhat
Consultancy In Pf
Valluvann
Manager Hr
+1 Other

Example: Basic - 4000 / HRA - 4000 / Other allowance - 4000 / Shift allowance - 2450
PF contribution of 12% is on Basic - 4000?
or
12% on all components except HRA?
From India, Chennai

As per law, it should be on gross salary except HRA. However, most of the companies including the big MNCs pay it only on Basic salary. This is because as per PF law contribution is payable on basic salary and dearness allowance. At the same time no body interprets the meaning of basic wage and it is the whole salary which the employer has agreed to pay to the employee except HRA and not the one that you fix for your convenience.
From India, Kannur
Thanks Madhu. It's clearly mentioned in the act that:
(b) “basic wages” means all emoluments which are earned by an employee while on duty or on leave or on holidays with wages in either
case in accordance with the terms of the contract of employment and which are paid or payable in cash to him, but does not include-
(i) the cash value of any food concession;
(ii) any dearness allowance that is to say, all cash payments by whatever name called paid to an employee on account of a rise in the
cost of living, house-rent allowance, overtime allowance, bonus, commission or any other similar allowance payable to the employee in
respect of his employment or of work done in such employment;
(iii) any presents made by the employer;
But still many companies are sticking to basic component only. Sad that PF Office is least bothered to take steps to educate the employers
From India, Chennai
While Sec.2(b) excludes DA and cash equivalent of food expenses from Basic Wages, Sec.6 covers all allowances for PF purpose. This was reiterated by EPFO in their circular dated 30.11.2012. Many employers opposed this and the then UPA government put this circular on hold. Many Trade Unions raised their voices against EPFO circular being put on hold. However, EPFO again reviewed this and is of the opinion that all allowances except HRA should be clubbed with basic pay for calculation of PF contribution. A good labour practice warrants the benefit should go to the labour as PF being a social security measure and EPFO is correct in this respect. Let us all follow EPFO's guidelines.
From India, New Delhi
Dear Sir,
As per PF act PF to be deducted on Basic, while DA is not included in Basic.
DA is separately added for PF wages.
“basic wages” means all emoluments which are earned by an employee while on duty or on leave or on holidays with wages in either case in accordance with the terms of the contract of employment and which are paid or payable in cash to him, but does not include-
(i) the cash value of any food concession;
(ii) any dearness allowance that is to say, all cash payments by whatever name called paid to an employee on account of a rise in the
cost of living, house-rent allowance, overtime allowance, bonus, commission or any other similar allowance payable to the employee in
respect of his employment or of work done in such employment;
EPFO has written in the circular that all the allowances to be included except HRA. While act is not amended accordingly.
On circular basis the act is not changed.
It is clearly mentioned that "Similar allowances are excluded" and Basic and DA is only included for PF wages.
From India, Pune
Dear Sir,
Their are many allowances by which employ can get Income Tax exemption in ITR.
such as Education allowance, Leave Travel Allowance, Conveyance Allowance etc.
If these allowances are part of your salary slip, employee avails tax benefit from this. As well as these allowances are not part of PF wages.
Thanks,
Vidyadhar Bhat
From India, Pune
I repeat that for the purpose of contribution your basic salary and dearness allowance will only be taken in to consideration. But what constitutes basic wage is very important. Any allowance which is paid as per contract of employment is part of basic wage. Now the employers will also raise that we do not pay any wages but we pay only salaries and therefore, we do not pay any PF. It should be understood that it is not just the basic salary as per your salary structure but the real meaning that should be taken into account. Even special allowance is part of PF contributing salary is it is paid to all the employees in general.
From India, Kannur
Dear Sir,
Special allowance is part of PF. Special Allowance is declared by the State Govt. / Central Govt. in their minimum wage schedule. Therefore establishment should avoid Special Allowance.
If any allowance unanimously equally paid to all the employees, it may be treated as part of PF wages.
The EPF Officers are not compelling to include all allowances is PF wages. Employer can challenge for the same.
Thanks,
Vidyadhar Bhat
From India, Pune
In states like Maharashtra, the dearness allowance is called Special Allowance. It is part of minimum wages. But what I have pointed out is an allowance which is normally a component of salary but other than DA.
I would like Vidyadhar Bhat to clarify his statement, " The EPF Officers are not compelling to include all allowances is PF wages. Employer can challenge for the same." Why and how can employer challenge and for what?
I would request the members to refer the Supreme Court verdict on Bridges and Roofs (India) Ltd Vs Union of India and decide whether we should include special allowance (other than dearness allowance) or not.
From India, Kannur
Dear Sir,
There in no doubt that Special Allowance is applicable to PF wages. Hence I have written that to avoid this word in Pay structure.
If the member is paying contribution on wages above 15 K, no question of paying additional on above 15 K, in any name of allowance.
For below 15 K wages, establishment should pay PF on Special Allowance.
If establishment is paying PF contribution on Basic and DA and PF official ask to pay PF on allowances, this can be challenged.
PF act says "but does not include- house-rent allowance, overtime allowance, bonus, commission or any other similar allowance payable to the employee in respect of his employment or of work done in such employment"
Thanks,
Vidyadhar Bhat
From India, Pune
I agree with Shri Vidyadahar. What EPFO insists is that PF wages should not be less than minimum wage since some employers attempt to split their wage structure to reduce the basic wage and then add some allowances. EPFO is against such splitting of wages in order to calculate PF Contribution on lesser (basic) wage. In this connection, I would like comments on the EPFO (internal) circular dated 23.05.2011 (attached).
From India, New Delhi
Yes,there was an attempt on the part of EPFO to make sure that the employers pay contributions at least on the notified minimum wages. But that has not been effective because the EPFO cannot enforce minimum wages which is a subject of State Labour department. There are a lot of industries for which minimum wages has not been notified and in such cases you can straightly say that you are not a scheduled employment and as such you pay as per the rules of the company. All these have happened due to poor enforcement of law and the employers have taken misused the word "basic" although the law speaks very well that it should include all components. When we noticed that HRA is exempted, we have also started paying 90% HRA!!! That happens only in India!!!
From India, Kannur
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