hukkli
1

Minimum wage is including all components like Basic , DA, HRA, Con, & other Allowance OR Basic and DA, If we consider only Basic and DA why should we calculate the EPF in other then HRA, Please suggest.
From India , Bangalore
Madhu.T.K
4193

The minimum wages as notified shall include Basic wage and a dearness allowance varying according to consumer price index. But if you don' t pay DA but pay some other components like HRA, Conveyance and other allowances and the total salary is not less than the notified basic and DA, then the company is said to comply with the requirements of minimum wages. This was endorsed by the Supreme Court of India in Airfreight India Vs State of Karnataka. Therefore, you can have any component in your salary but the total should not be less than the Basic and VDA at any point of time. (VDA means variable Dearness Allowance which will change with changes in CPI)

The above ruling by the Apex Court has been misused by us by including the least amount as Basic salary and a high amount as House Rent Allowance. The objective is to reduce burden of PF, Bonus, Gratuity etc which are based on basic and DA, if any. In EPF & MP Act, however, the Act has provided for payment of contribution on basic wages and DA only. But the basic wages as per the Act shall include all allowance other than HRA. Hence allowances which are available to all the employees shall be considered as part of basic wages. Accordingly, if your salary structure has " Conveyance allowance, Special allowance or other allowance as part of salary and if these are paid to all employees, then you have to pay contribution on these elements also. Still, the employer can restrict the contribution to 12% of Rs 15000.

From India, Kannur
hukkli
1

Thank you sir for your detailed explication
From India , Bangalore
hukkli
1

In Karnataka we are paying as below structure for unskilled employees. it is as per Karnataka minimum wage acceptable or any changes required plz.

Basic DA HRA Con Other All Total

4200 3540 3100 1250 3410 15500

From India , Bangalore
Madhu.T.K
4193

If the total, ie, Rs 15500, is not less than the sum of the basic and VDA of Minimum Wages fixed there is no issue. But when you pay PF on just Rs7740 (ie 4200+ 3540) it can be questioned by the PF authorities. At the same time, if you it on 15000, then it would be acceptable. Even paying PF on Rs 12400 (ie, 15500 less HRA of 3100) would be acceptable.

When pay Bonus on 7740, ie, basic and DA, then also you will fail to comply with the legal requirements.

Similarly, you cannot restrict the gratuity on your basic and DA if it falls short of the statutory minimum wages.

From India, Kannur
hukkli
1

thank you so much sir for your valuable suggestion

we are paying as below
EPF contribution on other then HRA
Bonus Calculating on gross salary
Gratuity on latest month Basic & DA but minimum wages will fixed on entry level.

From India , Bangalore
Madhu.T.K
4193

Ok, that is fine. Gratuity is payable for those with minimum five years of service and as such their basic plus DA shall conform to their service and not entry level minimum wages.
From India, Kannur
Srinath Sai Ram
609

Dear Mr Hukli,You have not specified Karnataka Minimum Wages which you are following is for Which industry? Employment Name? Components of Minimum Wages in Karnataka-basic+VDA.Pl share Minimum Wages Notification for better understanding
From India, New Delhi
raghunath_bv
149

Hi Hukkli,

The calculation of Employee Provident Fund (EPF) is typically based on the Basic and Dearness Allowance (DA) components of an employee's salary. This is because the EPF is designed to provide financial security and retirement benefits to employees, and it's important that the contributions are based on the core components of their salary.

Here's why EPF is calculated on Basic and DA:

Retirement Benefits: EPF is primarily a retirement benefit scheme. It ensures that employees have a substantial amount of savings when they retire, which is crucial for financial stability during their non-working years. Basic and DA are considered the most stable and consistent components of an employee's salary, making them a suitable base for EPF contributions.

Uniformity and Consistency: Basic and DA are usually fixed and less subject to fluctuation compared to other components like HRA (House Rent Allowance) or Conveyance Allowance. This provides a more stable and predictable basis for calculating contributions.

Legal and Regulatory Compliance: EPF contributions are governed by specific laws and regulations. In many countries, including India, the EPF Act defines how contributions are to be calculated. Typically, these regulations specify that it should be based on Basic and DA.

Protection Against Inflation: Dearness Allowance (DA) is designed to compensate for the inflationary pressures on an employee's salary. Since it's intended to help employees cope with the rising cost of living, it makes sense to include DA in the EPF calculation.

Exclusion of Variable Components: Allowances like HRA, Conveyance, and other special allowances can vary widely based on factors like location, job role, and company policies. Including them in EPF calculations could lead to inconsistency and complexity.

While HRA, Conveyance, and other allowances are important parts of an employee's total compensation, they are typically not considered for EPF calculations. They serve specific purposes (e.g., helping with housing expenses, commuting costs) and are often subject to change based on various factors.

It's important for both employers and employees to understand how EPF contributions are calculated and what components of the salary are considered. This transparency helps in ensuring compliance with legal requirements and provides employees with a clear understanding of their retirement savings.

Thanks,

From India, Bangalore
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