Industrial Relations And Labour Laws
Asst.manager -hr
+1 Other

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Dear Sir: In an important Supreme Court recent ruling that where the allowances universally, necessarily and ordinarily paid to all across the board, such allowances are considered to be "Basic Wages" and as such these allowances attracts P.F. Contributions. In this background, my queries:
1. When the contributions are paid by the Employer on the actual Minimum Wages (below the ceiling of Rs.15,000/-) for the scheduled employment fixed by the respective Government, whether the employer need to pay contributions over and above Minimum Wages amount shown in the other allowance columns attract P.F. contribution by virtue of this Judgment?
2. The Apex Court has now cleared as to what are the allowances construed as Basic Wages. Since there is a guideline for arriving at Basic Wages, whether it would be applicable to the Payment of Gratuity Act, as in this PGA there is no ceiling fixed as that of EPF & Misc Act i.e. Rs.15,000/- per month. In that case whether an employer has to pay Gratuity on the Basis of Basic Pay arrived at by this SC Judgment for calculation of Gratuity working for the outgoing employees.
Request Experts views please.

There is no relevance to notified minimum wages in calculating PF qualifying salary. Even before this verdict came, the Act (Employees PF & Mis. Provisions Act) was very clear with respect to basic wages. The only confusion was around whether contribution is payable on allowances other than Dearness Allowance. This is because in section 6 it says that contribution is payable on basic wages and dearness allowances. Therefore, we started paying PF only on basic wages (and DA if your establishment has the practice of paying it!) and in order to reduce our burden we started fixing this component of salary to the minimum. But we did not see the definition of basic wages which says that it is the sum total of the salary agreed by an employee to give his labour. It is that wages that he gets if he had worked for a day or if he has taken a CL or any other eligible leave. It is not just the basic pay that we pay when an employee takes CL or PL but it is the total emolument. Obviously, any attendance pay or a pay which is paid only based on attendance will be out of the scope of the definition.
When the employers start paying PF on reduced amounts the EPFO people started insisting payment of PF at least on minimum wages. At that time the mandatory PF qualying salary was just Rs 6500 and whereas the minimum wages for unskilled worker was more than that. Moreover, the EPFO cannot direct the employers to pay minimum wages. If the employer is in a position to hire a worker at a wages less than the minimum wages he can hire him and the EPFO cannot question it. Therefore, if you are able to hire a worker paying, say, Rs 5000, you can do so but you should pay PF on the entire amount of Rs 5000.
House Rent Allowance is an allowance in the salary which is excluded from the PF qualifying basic wages. There is no mention about the percentage of HRA to the basic. Now the next attempt will be to increase the percentage of HRA so that our burden can be reduced. In order to curb the practice of paying higher amounts as HRA, the EPFO has worked out a percentage at par with the Income Tax exemption slab of HRA. The decision will come soon.
The Payment of Gratuity Act also defines Salary as the entire amount payable as per contract of agreement. As such it will be the gross salary which will form base for gratuity calculation.
Please follow the link.

Dear Sri Madhu Sir: Thanks for your detailed clarification on the queries raised by me and I am sure, it will be much helpful to me to apprise our top officials. Your detailed views on the Judgment attached in the form a link would also be a nice one. Thanking you once again sir.
V Sridhar

Dear Sir,
I am an employee of M/s. Palsons Derma Private Limited, confused about my PF deduction . As per my below mentioned salary structure what amount is deductible by the company .
Basic > Rs. 7908.00
HRA> Rs. 1977.00
LTA>Rs. 833.00
Medical >1250.00
Special Allowance >Rs.5551.00
My Gross Salary is Rs. 19119.00. Company is deducting my PF Rs. 949.00. (on basic @12%) but I knew from a source that as per Hon"ble Supreme Court recent order it is not corrcet.
Can you please confirm about the actual calculation of deductible Amount.
Tarak Shaw

From the pay structure it appears that your PF qualifying salary is Rs 15059 as follows.
Basic 7908
Special allowance 5551
Conveyance 1600.
Since this sum is more than Rs 15000, the employer can restrict his contribution to 12% of Rs 15000.
LTA being an amount payable annually will not form part of salary. Similarly, medical allowance is paid subject to production of bills or a declaration to its effect and hence not part of salary.

what is new pf contribution employer and employee ?
Thank you for your response.
I have an another question that an existing employee ( Working last 5 years above ) who is getting his monthly salary as per below format.
Basic 21354.000
HRA 6406.000
Conveyance 1600.000
LTA 1000.000
Medical Reimbursement 833.000
Special Allowance 19650.000
Gross Earning 50843.000
and his Provident Fund deducting Rs. 2562.00 (12% on Basic). Now The company has decided to reduce his Provident Fund Basic Rs. 15000.00 and deduct Rs. 1800.00 from his salary.
My question is being an employer can it be done for an Existing Employee?
Tarak Shaw

Yes. The employer can reduce the PF contribution to the mandatory level. This was decided by the Apex Court in Marathwada Gramin Bank Karmachari Sanghatana Vs Management of Marathwada Gramin Bank. The verdict says that an employer who has been contributing PF on wages above the mandatory ceiling of Rs 6500 (now take it as Rs 15000 since the verdict came before the wage ceiling was increased to Rs 15000) can reduce it to Rs 6500 ( Rs 15000 now) and by doing so the section 12 of the EPF and MP Act which says that the employer cannot reduce the salary of an employee so as to reduce his contribution towards the Fund will not attract.
However, in practice and when you give offer to an employing saying that your "CTC" is so much, or Rs 53405,in the given case, this will not work out. In order to adjust it fairly, you will have to pay the difference of 2562 and 1800, ie, Rs 762 in some other way. Let him invest this amount by his own.

can you please share the process of voluntary contribution of provident fund. How much amount I can contribute as voluntary contribution in PF from my salary. Kindly guide. Regards Tarak Shaw
Dear Tarak,
The maximum contribution is up to 100% of your Basic Salary and Dearness Allowance. Interest is earned at the same rate as the EPF.
To open a VPF account, approach your HR team and advise them to raise a request for an additional contribution in the VPF through a registration form. The existing EPF account will serve as the additional VPF account.

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