Urgent Help Needed: How Should PF Contribution Be Calculated on Leave Encashment?

Dear friends,

I am new to this forum and seeking your advice for the first time. It is very urgent, and I have to give feedback to my management immediately.

Our company is paying PF contribution on gross pay instead of basic+DA+VDA for a long time. Now the problem arises with PF contribution on leave encashment. Our accounts say we should only calculate on basic and DA on the leave encashment and pay PF contribution of 12%. However, my HR colleague says we should calculate 12% on the entire amount of leave encashment.

Can any law expert educate me on the following: what does PF Commissionerate mean about PF contribution on leave encashment? A very urgent reply is solicited. Calculation procedures are also appreciated.

- MOHAN SHARMA

Dear Mohan Sharma,
Welcome to the forum..
Just check on this as far I know that PF is applicable on basic & DA and not VDA. However check and revert.
Your accounts deptt is correct and please do a search on the site ( which is on the top left – one would get the notification on this.
Cheers,
Rajat

Hi,

PF contribution on leave encashment is payable only on Basic and DA as being done on salary as per the act. Considering the gross for PF deductions is a voluntary act. Similar is the leave encashment status.

hrh-rajaram

Hi,

PF contribution is given on Basic and D.A., but in case the D.A. is not included in the salary structure, it is calculated on the basic only. Kindly read about the PF laws to know more about the PF contribution your company is calculating on the gross salary. I don't think that is right.

Archna

PF is calculated on Basic, i.e., 12%, and with the latest amendments, PF should also be paid for Leave Encashment. If there is a DA concept, PF is calculated on BASIC+DA.

Hope this clarifies your doubt.

Mahesh

PF is calculated on Basic, i.e., 12% of the salary. If the salary structure doesn't contain DA, PF is calculated only on the Basic amount. However, if it includes DA, PF is calculated on Basic + DA.

Leave encashment is subject to PF deduction, i.e., 12% of Basic or Basic + DA, depending on the salary structure.

Deepa

Hi, what your accounts department said is right. PF deduction is 12% of Basic + DA (employer & employee contribution), but for ESI, it is 4.75% and 1.75%, respectively. The deduction is calculated from the gross.

Hi,

As per the PF Act, the contribution is subjected to the wages of the employees. According to the definition, wages mean Basic + DA + Food Concession.

If we calculate the PF contribution on leave encashment, kindly let me know on which head in payroll we have to put the amount of leave encashment.

1. Should we distribute that amount in Basic + DA + Food Concession?
2. Should we put that amount as Arrear?
3. Should we put that amount under a new head "leave encashment"?

If we follow 1, the amount of earnings will increase in that particular month. What should be our clarification for this increase?

If we follow 2, what should be our clarification for this arrear?

If we follow 3, keeping in view the definition of wages as per the PF department (Basic + DA + Food Concession), can we deduct PF on this head?

Kindly clear my confusion.

Regards,
R.C. Joshi

Dear Friends,

Previously, PF was calculated only on Basic+ DA and on Leave encashment. However, as per the latest amendments on 12.03.2008, there will be no deduction of PF on Leave encashment. Please find attached the Supreme Court Judgment copy for your reference.

Point 1:
You are paying PF contribution on Gross. You will continue to do the same.

Point 2:
Let me assume that you are not in Tamil Nadu, where the High Court Judgment is clear about PF contribution on Leave encashment. Are you paying Gross for Leave encashement, or are you paying only Basic plus DA plus VDA? If you are paying Gross as leave encashement and if your practice is to contribute PF on gross, then you need to pay on gross. If you are paying only Basic plus DA plus VDA for leave encashment, then you need to contribute only on these three elements.

Siva

Hi,

PF can be deducted for leave encashment. However, as per the judgment given by the court, PF need not be deducted for leave encashment. Therefore, in our company, we have stopped deducting PF amount towards leave encashment.

As far as I know, PF is not to be deducted from Leave Encashment as per the new rules of SC. Please find the attached copy of it.

Hello all,

Please see the latest amendment on PF contribution in Leave Encashment. I hope it will answer your query...

Dear All,

In a notification by the EPFO in May 2008 (on a judgment by the Hon'ble Supreme Court dt. 12.03.2008), it has been decided to discontinue PF deduction on Leave Encashment. Additionally, where PF contribution of the employees' share has been received in the offices of the EPFO, the same shall be adjusted against future liabilities.

Hope this clarifies the status regarding PF deduction of LEAVE ENCASHMENT.

Best Wishes & Regards,
Debashis

Dear Debashis,

As of now, we have come across the SC judgment only. However, you have mentioned here that the respective notification was issued by the PF department in May 2008. I request you to please scan and attach the same (if available) to this thread for the knowledge and reference of all our professional friends.

Thanks & best regards,
Datta.

Hello everyone who has subscribed to this thread,

I have received a circular from the Ministry of Labour, Government of India, with the Provident Fund Head Office in Delhi, dated 05th May 2008. The circular states that with immediate effect, it is not necessary to deduct PF contribution on leave encashment amounts.

Please find attached the circular and feel relieved from the hassle of deducting PF contributions on leave encashment.

Regards,
Sanjay

Dear Mr. Sharma,

PF should not be deducted on Leave Encashment. Please refer to the attached judgment.

Regards, Avinash Verma 9925155711