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Pf Deduction On Minimum Wage - Doc Download


Dear All,

Can anybody tell me whether we can split the minimum wage into various components like HRA or Special Allowance other than Basic + DA? If yes, then may I have supporting documentation to justify the same?

If we give a salary slightly higher than the minimum wage, are we still required to allocate the amount equivalent to the minimum wage in Basic + DA, or can we split it as per our company policy?

Please provide me with the necessary supporting notifications for the aforementioned queries. Additionally, kindly share the Government notification copies of Minimum Wage for Delhi, Haryana, and Noida.

Regards,
MKK
From India, Gurgaon
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Dear Friend,

Greetings.

As per the PF Act, PF has to be deducted from the basic salary + DA, which should not be less than the minimum wages prescribed by various states for different types of employment. Therefore, whether an employee is a contract employee, casual employee, or permanent employee, PF contributions have to be deducted based on the minimum wage prescribed for the scheduled employment.

Cheers,
Trisha
HR Professional
From India, New Delhi
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Dear Trisha,

Thanks a lot for the information. May I have a clause number as per the act or any other documented proof to justify the same. Also, please provide the MW notification copy for Delhi, Haryana, and UP.

Regards,
MKK :icon1:
From India, Gurgaon
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Hi All,

48 Views...!!! No reply...!!! Why? What happened to all of you guys? May I have the circular copy where it is stated that PF has to be deducted on minimum wages at least?

Regards,
Manishi K. Kapil
From India, Gurgaon
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  • CA
    CiteHR.AI
    (Fact Checked)-The deduction of PF on minimum wages is mandated by law. The Supreme Court has ruled that PF contributions must be based on minimum wages, including all components. Reference: Employees' Provident Funds and Miscellaneous Provisions Act, 1952. (1 Acknowledge point)
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    • Hi I am also not get the copy of the notification which says that pf will be deducted on the minimum wages. Pls send the link or copy of the same
    From India, Gurgaon
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    Dear MKK,

    This is a very interesting situation, and members should genuinely contribute. My views are:

    - There is no mention in PFable salary (Basic+DA) should not be less than the Minimum wages.
    - Organisation, if paying above minimum wages (even if Rs.1 more than M.W.), can bifurcate wages as per wish. (As per Judgment of Hon. Supreme Court).
    - PF Act enforces us to comply with Basic + DA.

    Regards,
    ACCHR
    From India, Mumbai
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    Dear Friends,

    As per my knowledge, if the employee is drawing a salary (Basic+DA) less than Rs. 6500/-, then the other salary components like Medical Allowance, Conveyance Allowance, Lunch allowance, and any other allowance would also be considered at least up to Rs. 6500/- (except HRA, OT, Bonus, LTA, Commission, and other similar allowances) for Provident Fund deduction.

    Example:
    Mr. X's salary structure & Deductions

    SALARY STRUCTURE 1
    Basic: 3500
    DA: 1000
    Conveyance Allowance: 800
    Education Allowance: 200
    Medical Allowance: 900
    HRA: 1650
    Monthly Gross: 8050
    Provident Fund: 768
    ESIC: 141
    PT: 175
    Total Deduction: 1084
    Net Payable: 6966
    FPF Contribution: 533

    SALARY STRUCTURE 2
    Basic: 5000
    DA: 2000
    Conveyance Allowance: 800
    Education Allowance: 200
    Medical Allowance: 900
    HRA: 1650
    Monthly Gross: 10550
    Provident Fund: 840
    ESIC: 000
    PT: 200
    Total Deduction: 1040
    Net Payable: 9510
    FPF Contribution: 541

    SALARY STRUCTURE 3
    Basic: 5000
    DA: 2000
    Conveyance Allowance: 800
    Education Allowance: 200
    Medical Allowance: 900
    HRA: 1650
    Monthly Gross: 10550
    Provident Fund: 780
    ESIC: 000
    PT: 200
    Total Deduction: 980
    Net Payable: 9570
    FPF Contribution: 541

    The calculation of the above 3 salary structures is correct as per my knowledge.

    Regards,
    Chetan Nehete
    9819587485

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  • CA
    CiteHR.AI
    (Fact Checked)-The information provided in the user reply is partially correct. However, the part about considering other salary components for Provident Fund deduction up to Rs. 6500/- is accurate. Amendment: false (1 Acknowledge point)
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    • Dear Chetan,

    I think the question is not properly understood. The question is not on the maximum ceiling under PF Act but it is on the salary to be considered for PF deduction with respect to the Minimum Wages Act. Once again, I reproduce the question as below:

    1) Can anybody tell me whether we can split the minimum wage into various components like HRA or Special Allowance other than Basic + DA? If yes, then may I have supporting evidence to justify the same?

    2) If we give a salary slightly more than the minimum wage, are we still supposed to put the amount equivalent to the minimum wage in Basic + DA, or can we split it as per our company policy?

    My views are also appended above. Kindly refer. Other members are requested to contribute as there are different views from different agencies including Legal Counselors. In fact, we are facing this kind of situation while dealing with the PF authority as they enforce the company to comply with PF deduction on at least the minimum wages.

    Regards,
    ACCHR
    From India, Mumbai
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    Dear Manishi,

    As per my knowledge, you cannot split the minimum wages because, as per the EPF Act, you have to deduct PF on minimum wages. Therefore, you have to show basic + DA at least minimum wages.

    Thanks,
    Sahil
    From India, Delhi
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    Dear,

    More than the calculation part, please see the Airfreight Judgment. You can download it from our CITE HR download section. Reading this will erase the doubts you have. Section 4 of the Minimum Wages Act should be read plainly to better understand it.

    With Regards

    E-mail: rajanassociates@eth.net
    Off: 044-42620864, 044-55874684
    From India, Bangalore
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    Go through the attachment
    From India, Pune
    Attached Files (Download Requires Membership)
    File Type: doc BEHAVIOUR IN OFFICE.doc (54.0 KB, 1633 views)

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    Hello All,

    After viewing the above statement, my submission is in accordance with the Minimum Wages Act. Minimum wages can be bifurcated into Basic+DA+HRA or Basic+HRA. One gentleman has stated that it can be bifurcated into a number of components as per the Supreme Court. I request elaboration with reference to the case.

    Regarding PF, in general practice, it should be deducted on Basic+DA, not VDA. On the other hand, we need to analyze the definition of "basic wage" under Sec. 2(b) - "basic wages", in accordance with the terms of the contract of employment, which has been interpreted by Inspection authorities in various ways. The case should be registered and harsh measures taken against establishments under Sec. 7A.

    PF deductions should not be less than the minimum wages without support from the department. However, the RPFC Commissioner (state-wise) has enforced a circular that is also under protest.

    BR//Gajendra Verma
    From India
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    I think Basic Calculation

    Gross = 10000
    Basic = gross * 40% (Minimum Wages Act 40% Calculation for the gross).
    HRA = gross * 30%
    Conveyance = gross * 10%
    Medical Allowance = Gross * 10%
    Special Allowance = gross * 10%

    Deduction
    Employee
    PF = Basic * 12%
    ESI = Total earning * 1.75%

    :no:
    From India, Madras
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    Dear all,

    The Airfreight judgment of the Honorable Supreme Court is the right answer quoted by my friend. I feel that the spirit of the law must be honored, and one should not be looking around for ways to escape it. There is not only the PF Act but also Acts like the Payment of Bonus and Payment of Gratuity, which are paid based on the components of Basic + DA. VDA is also considered as DA. Basic + DA + VDA (if any) should be equivalent to or more than the minimum wage fixed by the government. Bifurcation is the prerogative of the employer but not at the cost of the employee. Basic + DA has to be equivalent to or more than the minimum wage fixed; otherwise, the employee will lose in terms of gratuity and bonus.

    Regards,
    Jpratap
    From India, Chandigarh
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  • CA
    CiteHR.AI
    (Fact Checked)-The user's reply contains accurate information regarding the components that should make up the minimum wage and the importance of honoring the spirit of the law. The mention of Acts like Payment of Bonus and Payment of Gratuity, as well as the requirement for Basic + DA to meet or exceed minimum wage, is correct. (1 Acknowledge point)
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    • Trisha is correct For minimum basic wages go to website of labour department. Regards Pankaj Chandan
    From India, New delhi
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    Hi,

    For your first question, the minimum wage cannot be split into other components like special allowance, etc. It should be strictly BASIC + DA.

    Regarding your second question: Whatever hike you give above the minimum wage is up to the company's discretion to maintain it as a whole in BASIC + DA or split it into other components. For example, if X should receive a minimum wage of 4030 but we fix his actual salary at 5000, we can structure it as BASIC + DA: 4030, and the remaining amount of 970 can be allocated to any other components. Alternatively, it can be set as BASIC + DA: 5000; this decision purely depends on the company's policy.

    I hope I have clarified your queries. If I am mistaken, please feel free to correct me.

    Regards,
    Rohini
    From India, Bangalore
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    Hi,

    PF doesn't mention minimum wages. It only states that basic+DA should be considered for PF calculation. However, it is implied that you must adhere to the Minimum Wages Act, which is equally applicable to your factory. In any case, the PF inspector cannot demand compliance with minimum wages.

    Regards,
    Robert
    From India, Madras
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    PF Act doesn't mention minimum wages. It only specifies that wages, i.e., basic + DA, should be considered for PF calculation. However, it is implied that you must adhere to the Minimum Wages Act, which is also applicable to your factory. In any case, a PF inspector cannot insist on compliance with minimum wages.

    Regards,

    Robert
    From India, Madras
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    Dear all,

    1) Can anybody tell me whether we can split the minimum wage into various components like HRA or special allowance other than basic + DA? If yes, then may I have supporting documentation to justify the same?

    2) If we give a salary slightly higher than the minimum wage, are we still required to allocate the amount equivalent to the minimum wage in basic + DA, or can we split it as per our company policy?

    Please provide me with the necessary supporting notifications for the above query, and also share the government notification copies of the minimum wage for Delhi, Haryana, and Noida.

    Regards,
    mkk

    Dear Meenakshi,

    Minimum wages refer to the limit of wages for individuals categorized as unskilled, semi-skilled, and skilled workers. This means that the government mandates paying the basic + VDA as determined by the government for a helper. Therefore, you must deduct PF based on the government-decided basic + VDA. For instance, if the minimum wages for a helper are 4000/- and you are paying them 5000, you can allocate the amount accordingly. However, remember that the basic + VDA should total 4000/-, and the additional 1000 will be allocated to other components.

    Ok?
    From India, Rudarpur
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    Hi,

    What the employee is entitled to get is the wages, the totality thereof, at a rate not less than the minimum wage rate prescribed. Therefore, if the employee is paid more than the minimum wage, it cannot be said that there was a breach of the employer's duty as defined by Section 12(1) of the act. Even as per the judgment of the apex court, there is no need for paying VDA separately.

    Thanks
    From India, Pune
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    Hi,

    Much was discussed on this subject. The actual point for discussion is whether the minimum wages paid to an employee can be bifurcated into various components like Basic, DA, HRA, Conveyance Allowance, Washing Allowance, Special Allowance, etc., and by including all these allowances, it should not be less than the minimum wages prescribed by the Government for a particular class of establishments/category of employees.

    As per Section 2, sub-section (h) of the Payment of Minimum Wages Act, 1948, wages are defined as "all remuneration, capable of being expressed in terms of money, which would, if the terms of the contract of employment, express or implied, were fulfilled, be payable to a person in respect of his employment or work done in such establishment. It includes house rent allowance but does not exclude certain types of allowances as mentioned in clauses (i) to (v) under the aforementioned section.

    By perusing the language used in the above definition, the minimum wage constitutes all the allowances that are capable of being expressed in terms of money. Hence, there is no harm in bifurcating the minimum wage component into various nomenclatures of allowances, but it should be kept in mind that all these allowances put together should not be less than the minimum wages prescribed by the Government for the particular class of establishment/factory.

    However, as per Section 6 of the PF Act, the contributions, as per the rates fixed by the Government, shall be payable on "basic wages, dearness Allowance, and retaining allowance if any." Section 2(b) defines what a basic wage is, stating that it means all emoluments earned by an employee while on duty in accordance with the terms of employment but does not include HRA, Commission, or any other similar wages. For example, if HRA/Special Allowance/Commission is included in our pay structure, it will satisfy the requirements of the Minimum Wages Act and also not be liable for contributions on those allowances under the PF Act. From the above, it is clear that we can bifurcate the minimum wages as per the standing orders of the Company and pay the PF contributions only on those allowances as defined under the PF Act.

    Thanks

    With regards
    From India, Hyderabad
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    Dear ACCHR,

    You can't split minimum wages into various components other than Basic & DA. If you are providing more than the minimum wages notified for your specific trade, then you can split the excess amount into various components according to your wish to evade PF & ESI.

    For example, if the Minimum Wages specified by the Government is Rs.165/-, and you are providing Rs.190/-, then by keeping Rs.165/- as Basic & DA, you can split the remaining amount into various components as per your wish. It is important to note that whatever the PF Authorities say is correct in this particular regard. I would recommend referring to the recent Karnataka High Court Judgment on the same (Group 4 Security Vs RPFO).

    Regards,
    Pavan
    9629488214
    From Australia
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    Dear All,

    I have had arguments with many HR professionals about the splitting of Minimum Wages. Those who are truly HR professionals will never allow the splitting of minimum wages. Even good employers will never allow it. There are high court judgments that say you can split the MW if you are paying more than MW, but I am not aware if PF authorities will allow it or not.

    I also need a notification copy from PF authorities that states PF does not have any concerns with Minimum Wages (Basic+DA).

    Regards,
    Omprakash
    From India, Pune
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    Dear All,

    It was a useful discussion so far. No doubt that an employer has to pay minimum wages as per the Minimum Wages applicable in that state. The question is whether this minimum wage payable can be split into different components and PF can be administered accordingly.

    Assume Minimum Wages applicable to a particular state is Rs. 182/- per day. This means we need to pay around Rs. 4750/- p.m. Now, the question is whether this can be split into various components? The answer is "Yes." For example, we can split it like this:

    Basic HRA CCA Conv Other allowance Gross salary

    1250 1750 500 800 450 4750

    Hence, we need to pay a 12% PF contribution only on the basic. I had attended a seminar convened by Employers' Federation of Southern India (EFSI) recently in Chennai, wherein the Commissioner of PF was one of the speakers. One of the participants raised a question, "was there any rule that a certain percentage of Gross must be maintained as Basic (+DA)?" He answered there is/was no such rule like that. It is the employer's wish to have basic as 3500 or 1000. The only difference that will make is at the time of retirement, the superannuated employee will be left with little pension to be paid to him. It is the employer's wish to give him more benefit or not - he asserted.

    Hence there is:

    1. Nothing wrong in splitting the Minimum Wages into different components as long as you pay the minimum wage, i.e. Rs. 4750/- (in our example).

    2. No specific set of rules w.r.t. fixing Basic wage for an employee/labour.

    Thanks,

    V. Balaji
    From India, Madras
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    Not at all. If you are not paying as per labor rules and bifurcation given by labor ministry than you are defaulting. Rgds, OPK
    From India, Pune
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    Dear Manishi,

    You cannot split the minimum wages for the purpose of PF. You should go through the minimum wages, which are clearly defined into Basic and DA. Splitting the minimum wages itself is non-compliance.

    As per the Minimum Wages Act, you have to pay the defined basic wages, DA, and a minimum of 5% HRA (it may vary from state to state). You can pay more, but not less than the defined amounts.

    Thanks,
    Om
    From India, Pune
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    Here is the corrected text with proper spelling, grammar, and paragraph formatting:

    Here is the circular dated 23-05-2011 from the PF department advising that "Splitting of Minimum Wage for the purpose of PF contribution is not permitted."

    Thanks.

    Jacob Pratap
    Deputy Labour Commissioner, Punjab (Retired)
    Consultant (Labour Laws)
    Certified External Member for ICC under the Sexual Harassment Act, 2013
    From India, Chandigarh
    Attached Files (Download Requires Membership)
    File Type: pdf PF Contribution on not less than Minimum Wage.pdf (684.1 KB, 139 views)

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    SD
    AS
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  • CA
    CiteHR.AI
    (Fact Checked)-[The user reply is correct as per the circular dt 23-05-2011 of the PF department, which states that splitting of minimum wage for PF contributions is not permitted.] (1 Acknowledge point)
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    • hello, We have bifurcate our salary into Basic+DA+HRA,if Minimum Wage is equal to Basic+DA than Pf is to be calculated on Minimum Wage or on Gross Salary(Basic+DA+HRA). Thanks Yashika
    From India, Bhuj
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    Related Files & Downloads Shared By Members
     PF Contribution on not less than Minimum Wage.pdf
     Minimum Wage of UP & UK.pdf
     Minimum Wage Increase w.e.f. 01.07.2021.pdf


    Human Resource Management (HRM) Community Journal & KnowledgeBase (Entry: 69034)

    India, Gurgaon
    28 December 2007 11.38.48 AM
    Views: 28677 Replies: 30 Appreciations: 3

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