You have misunderstood the recent judgement of SC as per my opinion.
All fix components of break up will attract PF as per my understanding. HRA will attract the PF as well.
Otherwise many companies keep HRA only in their salary break up to avoid PF liability.
Request you to read judgement again or go for good consultant.
29th April 2019 From India, Pune
so to claim HRA as allowance the employer has to either pay the rent directly to landlord or to obtain the rent receipts copy ( form 12BB of income tax will work perfect on the subject)
as per current verdict all components which do not qualify as Exempt allowance under income tax are now to be get added in EPF salary also. (overtime is only exemption, but subject to the permission of inspector of factories /shop & establishment)
29th April 2019
I am sorry to state that you are wrong instating that HRA is included for calculation of PF. Please find below the excerpt form the judgement
"The aforesaid provisions fell for detailed consideration by this Court in Bridge & Roof (supra)when it was observed as follows:
“7. The main question therefore that falls for decision is as to which of these two rival contentions is in consonance with s. 2(b). There is no doubt that "basic wages" as defined therein
means all emoluments which are earned by an employee while on duty or on leave with wages in accordance with the terms of the contract of employment and which are paid or payable in cash.
If there were no exceptions to this definition, there would have been no difficulty in holding that production bonus whatever be its nature would be included within these terms. The difficulty, however, arises because the definition also provides that certain things will not be included in the term "basic wages", and these are contained in three clauses. The first clause mentions the cash value of any food concession while the third clause mentions that presents made by the employer. The fact that the exceptions contain even presents made by the employer shows that though the definition mentions all emoluments which are earned in accordance with the terms of the contract of employment, care was taken to exclude presents which would ordinarily not be earned in accordance with the terms of the contract of employment. Similarly, though the definition includes "all emoluments" which are paid or
payable in cash, the exception excludes the cash value of any food concession, which in any case was not payable in cash. The exceptions therefore do not seem to follow any logical pattern which would be in consonance with the main definition.
8. Then we come to clause (ii). It excludes dearness allowance, houserent 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.
This exception suggests that even though the main part of the definition includes all emoluments which are earned in accordance with the terms of the contract of employment, certain payments which are in fact the price of labour and earned in accordance with the terms of the contract of employment are excluded from the main part of the definition of "basic wages". It is undeniable that the
exceptions contained in clause (ii) refer to
payments which are earned by an employee in
accordance with the terms of his contract of
employment. It was admitted by counsel on both
sides before us that it was difficult to find any one
basis for the exceptions contained in the three
clauses. It is clear however from clause (ii) that
from the definition of the word "basic wages"
certain earnings were excluded, though they must
be earned by employees in accordance with the
terms of the contract of employment. Having
excluded "dearness allowance" from the definition
of "basic wages", s. 6 then provides for inclusion of
dearness allowance for purposes of contribution.
But that is clearly the result of the specific
provision in s. 6 which lays down that contribution
shall be 61/
4 per centum of the basic wages,
dearness allowance and retaining allowance (if
any). We must therefore try to discover some basis
for the exclusion in clause (ii) as also the inclusion
of dearness allowance and retaining allowance (for
any) in s. 6. It seems that the basis of inclusion in
s. 6 and exclusion in clause (ii) is that whatever is
payable in all concerns and is earned by all
permanent employees is included for the purpose,
of contribution under s. 6, but whatever is not
payable by all concerns or may not be earned by all
employees of a concern is excluded for the purpose
of contribution. Dearness allowance (for examples
is payable in all concerns either as an addition to
basic wages or as a part of consolidated wages
where a concern does not have separate dearness
allowance and basic wages. Similarly, retaining
allowance is payable to all permanent employees in
all seasonal factories like sugar factories and is
therefore included in s. 6; but houserent
allowance is not paid in many concerns and
sometimes in the same concern it is paid to some
employees but not to others, for the theory is that
is included in the payment of basic
wages plus dearness allowance or consolidated
wages. Therefore, houserent
allowance which may
not be payable to all employees of a concern and
which is certainly not paid by all concern is taken
out of the definition of "basic wages", even though
the basis of payment of houserent
where it is paid is the contract of employment.
Similarly, overtime allowance though it is generally
in force in all concerns is not earned by all
employees of a concern. It is also earned in
accordance with the terms of the contract of
employment; but because it may not be earned by
all employees of a concern it is excluded from
"basic wages". Similarly, commission or any other
similar allowance is excluded from the definition of
"basic wages" for commission and other allowances
are not necessarily to be found in all concerns; nor
are they necessarily earned by all employees of the
same concern, though where they exist they are
earned in accordance with the terms of the
contract of employment. It seems therefore that the
basis for the exclusion in clause (ii) of the
exceptions in s. 2(b) is that all that is not earned in
all concerns or by all employees of concern is
excluded from basic wages. To this the exclusion of
dearness allowance in clause (ii) is an exception.
But that exception has been corrected by including
dearness allowance in s. 6 for the purpose of
contribution. Dearness allowance which is an
exception in the definition of "basic wages", is
included for the propose of contribution by s. 6 and
the real exceptions therefore in clause (ii) are the
other exceptions beside dearness allowance, which
has been included through S. 6.”"
It is clearly evident that the SC has used its earlier decision to exclude HRA for calculation of PF as it is not an allowance that is uniformly paid across organization to everybody
30th April 2019 From India, Hyderabad
30th April 2019 From India, Nasik
Basic wages Dearness allowance (all cash payments by
whatever name called paid to an employee on
account of a rise in the cost of living)
Cash value of any food concession
However, ‘basic wages’ does not include cash
value of any food concession, Dearness allowance,
House rent allowance, Overtime allowance, Bonus,
Commission or any other similar allowance payable
to an employee in respect of his employment, any
presents made by the employer.
As per aforesaid matter HRA exclude from the basic salary .Therefore your are requested to suggest me said salary structure is ok or not .I am not clear yet in this context
30th April 2019 From India, Shimla
Being a HR We have to think both side employer as wall as statutory compliance as per said judgment .Hence i post this matter on best platform where i am seeking your value able suggestion
30th April 2019 From India, Shimla
I am completely agreed with all the answer but i have one question.
If its all about salary head and break up, Should i keep only HRA in my salary break up to avoid PF Liability, Bonus Liability, Gratuity liability and other all social security benefits ?
Salary 15,000 CTC
Salary break up
Gross salary - 15000
It means only liability of ESIC and professional tax else no liabilities from employer side ? ( Esic applicable area for liability else no liability )
No PF and other liability as salary head is HRA ?
I am raising a question nothing else.
30th April 2019 From India, Pune
I am also assuming that the questionnaire has a problem with Dearness Allowance that is shown as excluded in the definition of basic wages under Sec. 2 (b). If you read further either the Act or the Case you will realise that DA is getting covered for PF under Sec 6. To my mind it is an anachronism found in the Act itself.
Post the SC judgment the thumb rule to apply is that if you pay any amount across the board without the recipient having to do anything special to earn it (like incentive bonus) it would amount to a "universal" allowance applicable to all attracting PF.
30th April 2019 From India, Nasik
A well knowledge based HR will never allow HR component on just split basis, but will ask the employee to have a short discussion and submit some formal documents to get the benefit of exempted allowance.
HR job profile is not a cyclostyle copy to do, but it needs to get calibrated with all concerned departments, which are related to finance and labor both
30th April 2019
I am sharing herewith recent SC judgement copy description by EPFO Vadodara chapter, Gujarat for your ready reference.
Hope it will clear all your doubts.
Please contact your regional EPFO office for any doubts with this presentation from EPFO it self.
All the best!!!
1st May 2019 From India, Pune
Thanks for your valuable suggestion on aforesaid matter . One of my HR know company changed his salary structure after the supreme court judgment which is as beneath .
They simply informed to all employees that w.e.f from 01/04/2019 "Special Allowance ' will be termed as " DEVELOPMENT ALLOWANCE " IN YOUR SALARY STRUCTURE "
Please advice or having the idea related to DEVELOPMENT ALLOWANCE
2nd May 2019 From India, Shimla
I had attended a grievance program in Bangalore regarding the recent changes in the PF and PF assistant commission was the key answer person in the program. He confirmed that HRA components will not attract the PF. Many has raised the question about fixing the HRA percentage. since there is no proper rule for salary structure, he said it will be case to case basis.
as per my knowledge, salary components vary case to case basis. i.e. Salary components will differ where a company located in cities, villages, hilly areas or costal areas. for example, HRA cannot be same for the company which is situated in City and villages. usually in towns Rent will be more. we have to fix HRA more in this places. we have to consider Income Tax treatment also. if HRA is less than the actual rent paid then it will be affected to claim HRA exemption in IT. all these issues only for those who is drawing salary less than 15K. My suggestion is you can fix HRA 20%-40% of gross (24% is safest since Govt organization in Bangalore maintain the same) if you are in town. frankly speaking, PF official has the power to raise the question about your salary components. you should have the proper justification about your policy.
3rd May 2019 From India, Bengaluru
Our company is situated at panchkula city of we can keep 60% basic of gross salary and 40% hra of gross salary it is admissible or not kindly share if you have any idea about development allowance . i am waiting for your valuable suggestion please
3rd May 2019 From India
whether the cost of living in your city is more.? as of my knowledge, the city Panchkula is a small city comparatively living cost also will be less(assumption). My suggestion is, you can fix HRA 30%. it is better to consult your PF office regarding HRA and development allowance for more clarity. because they are the authority to inspect your organization.
3rd May 2019 From India, Bengaluru
29th May 2019 From India, Bangalore