Notice Pay And Pf Deduction - Doc Download

Dear Friends,

Please clarify if the employer needs to deduct the PF on the notice pay that is given to the employee in lieu of the notice period.

Many thanks for your help and support.

Kind Regards,
Sonia

Hi,

How can you deduct PF on notice pay, since it will consist of allowances other than basic and DA? PF is deducted only on Basic+DA.

Regards,
Harshad

Dear Harshad,

I believe what is conveyed is that PF is deductible on the basis of the notice pay payable to an employee when they exit from the organization.

I have another question regarding this - In case we are claiming notice pay from a leaver in lieu of not serving the required notice period, and the notice pay is equivalent to one month's gross salary rather than simply Basic + DA, under such circumstances, would the gross salary excluding the PF amount be claimed from the leaver?

Looking forward to your thoughts.

Many thanks,
Sonia

Hi,

Any income through your salary, the employer will deduct PF. So as in this case as well.

Secondly, any notice pay on either side is purely decided then & there in the Letter of appointment. Again, if notice pay has to be there, then PF must be deducted or recovered on it. In this case, for the next notice period, you can show the employee as on roll in PF challan as you have given a written clause in his appointment letter to pay him in case he leaves.

Dear Sonia,

What I meant was in notice pay, PF is not applicable as the employee is not working in that period. It is applicable in both cases, in which we are paying notice pay or recovering it.

Regards,
Harshad

Hi Raul,

Thanks for your response; however, it was not clear. The employee would not make an income if the notice pay is claimed by the employer from the employee. Hence, I believe the employer should claim gross salary excluding PF (if PF is part of the gross salary) while claiming the notice pay.

Please comment.

Many thanks, Sonia

Dear Sonia,

The fact is, during the notice period in either case, the particular employee is not in the employment of the company. Therefore, no PF will be deducted. When we give or recover notice pay, we will pay or recover the full gross.

Regards,
Harshad

Dear Harshad,

Just to clarify - you mean to say that we pay/recover the full gross salary and, in either case, do not submit anything to the PF Fund?

Kind Regards,
Sonia

Hi,

Please don't be confused. If it's stated in your appointment letter that the notice period must be recovered from an employee if they choose to leave without serving the notice period, then the fixed components of the gross monthly salary must be recovered from the employee, including PF. The PF amount will be submitted to the PF department, and vice versa.

Hello,

My name is Srinu. I have some clarifications regarding PF. If an employee's salary consists of basic pay + DA of Rs. 8000/-, and he doesn't want to contribute to PF, is he exempted from making the contribution? What type of declaration should he provide to the employer?

Since the coverage of PF is for salaries up to Rs. 6500/-, please clarify this for me.

Thank you.

Notice pay and PF are not at all related to each other. In fact, what is related is Basic and Leave encashment. One should not be deducting PF on notice pay. In the PF Act, nowhere is it mentioned.

Dear Friends,

Please clarify if the employer needs to deduct the PF on the notice pay that is given to the employee in lieu of the notice period.

Many thanks for your help and support.

Kind Regards,
Sonia

Dear Sonia,

Since the notice pay does not fall within the meaning of wages as per the PF Act, therefore, PF is not deducted. I think it's clear now.

Regards,
Madan Singh
Gurgaon

Dear Sonia,

PF deduction is applicable only during the working period. However, the notice period does not fall under working days. The notice period is determined based on the notice period clause mentioned in the appointment order.

Satya Reddi

Dear Sonia,

As per PF deduction rules, if an employee resigns from the organization, their final settlement is treated as Notice Pay or salary for the resigned month. Therefore, their PF will be deducted as it was earlier already deducted by the organization. I hope this clears up your doubts.

Regards,
Bhagwan Tolani
Senior HR
CM Group
New Delhi
9968737796

Dear All,

If we try to understand the concept behind Notice Pay, we'll get to know whether we have to contribute PF on the same or not.

In the Appointment letter, we mention the clause of Notice pay to avoid employees from leaving the company at their own wish without assuming accountability. To avoid the loss of losing an employee out of the blue, the company adds the clause of Notice pay. It means that if any employee wishes to resign, he will serve a notice of 1 month (or whatever is mentioned), during which time the company shall find his replacement and train the new hire without any loss to the company.

If an employee disagrees to serve such a period, then to penalize him or to force him to stay back for a month, an amount called 'Notice Pay' is claimed. On the other hand, if a company wishes to terminate an employee with immediate effect, in order to compensate him for the cost of finding a new job, an amount called 'Notice Pay' is paid.

In both cases, we clearly observe that the employee was not on the rolls of the company. Thus, in my view, PF should not be deducted as wages. 'Notice Pay' is not a wage being paid but rather a compensatory amount equal to one's salary by default.

I may not be 100% correct, but this is according to my knowledge. I hope that clears up many doubts.

Thanks & Regards, Parul Makkar Manager - HR

Dear Friend,

I have a question regarding your inquiry. If A is working with a company with a basic salary of Rs. 5000/- per month and resigns by providing a one-month notice, leaving on the last day of the month, what will be his basic salary in the Full and Final settlement? Additionally, if B is working with a company with a basic salary of Rs. 5000/- per month and resigns without giving any notice, what will be his basic salary in the Full and Final settlement? Regardless of your response, please remember to deduct the provident fund (PF) from that amount.

I hope the question is clear now.

With regards,
Nitin

I agree with Satya Reddy and Arun Banerjee. PF is applicable if the employee exists in the company. When an employee is not going to be there in the company any longer, why is PF required to be paid for non-working days? So, it's not applicable.

Ravin

Dear all,

It is very clear by law and by a SCourt decision that NOTICE PAY is not part of your salary, and therefore PF should not be deducted. If someone has a contradictory ruling, please let me know.

Dear all,

It is very clear by law and by Supreme Court decision that NOTICE PAY is not part of your salary and therefore PF should not be deducted. If someone has a contradictory ruling, please let me know. 🤔

Hi Sonia,

Let me try to explain. Mr. Harshad is right; any notice pay (either payable or recoverable) does not come under the definition of PF wage as per the PF Act, so there is no deduction. Notice pay is a part of the contract made between the employee and the employer for employment, and the notice pay amount does not fall under the purview of any act for compliance.

I hope this clarifies your doubts.

Regards,
Khushbu

Dear Sonia,

There is no need to deduct P.F. on notice pay being paid to an employee in lieu of the notice period. This is because P.F. deduction is made on earned wages. Since notice pay is not considered earned wages, there is no need to include it in the calculation for P.F. deduction.

For more clarification, please refer to the definition of wages under the Employee Provident Fund & Miscellaneous Act 1952.

Thanks,
Mohd. Arif Khan

Dear Friends,

Thank you all for your views on the topic. However, the point is still not clear as there are mixed opinions on whether PF is to be deducted/recovered on notice pay.

Kind Regards, Sonia

To Ms. Sonia,

As per the appointment order, every organization should mention the notice period. PF deduction will not occur during the notice period; this amount will be directly deducted from the employee's full and final settlement. During the notice period, the number of days the employee attended work and the corresponding salary will be calculated. The PF amount will then be deducted from the salary and sent to the PF contribution along with all current employees.

Example:
Employee notice period: 1 month
Basic salary: 5000
Resignation date: 1st November, requesting the relieving date of 15th November

PF deduction calculation:
= 5000/30 * 15 = 2500 (for 15 days of basic salary)
= 2500 * 12/100 = 300 (PF Contribution)
The amount of 2500 rupees will be directly deducted from his full and final settlement on behalf of the notice period.

Best Regards,
James

Dear Friends,

Please clarify if the employer needs to deduct PF on the notice pay given to the employee in lieu of the notice period.

Many thanks for your help and support.

Kind Regards,
Sonia

Hi All,

I think the Supreme Court has clearly defined what constitutes wages for PF contributions in the case of Manipal Academy of Higher Education v/s PF Commissioner. Considering this perspective, PF should not be applicable to Notice pay. I am attaching the details of the mentioned Supreme Court judgement for reference.

Regards,
Ravikiran

If you are paying the amount under the salary head "Notice Pay," then there is no need to deduct PF contribution. If you pay the notice pay amount under the salary head "Basic Salary," then yes, PF needs to be deducted.

Regards,
Nitin Asalkar

Dear Friends,

It is a part of the full and final settlement that PF SHOULD NOT BE DEDUCTED.

Regards,
Dabas

Dear Friends,

Thank you very much for your expert guidance. The point is crystal clear along with proper reasoning. I am thankful to all who have contributed to this discussion.

Kind Regards,
Sonia

Dear All,

For the benefit of all, I hereby quote the Bombay High Court Judgment in the matter of "India United Mills Ltd. v. RPFC" that a payment made in lieu of notice by way of consideration for terminating the contract of employment of a permanent employee does not constitute "basic wages" under Section 2(b) of the PF Act.

The Hon'ble court stated that the expression 'emoluments which are earned by an employee while on duty' represents the amounts actually earned by an employee during the period of his employment while he is actually on duty. The payment in question is not a payment earned for duty done. It is not a payment earned while on duty. It is a payment by way of consideration for terminating the contract of employment of a permanent employee without notice. The payments made cannot in any sense be regarded as representing 'emoluments earned while on duty and are not and do not constitute 'basic wages' within the meaning of the definition given in the Employees' Provident Funds Act, 1952, and no percentage thereof is payable by way of provident fund contribution.

Therefore, the emoluments towards notice pay do not attract PF.

Hope the above clarification will close the matter for further discussion.

Regards,

Anwar

Dear Sonia,

Mr. Harshad is correct. PF is not to be deducted from Notice Pay.

Best wishes,
KRK Rao

Hi Sonia,

Notice pay paid to an employee will not attract PF deductions on his basic salary. The premise taken is that for any earnings by an employee "on duty," PF (if covered) is deductible and payable to the RPFC/PF Trust. Notice pay is not construed as serving on duty and hence is not "wages" in the strictest of definitions for the purposes of PF.

If notice pay is recovered from an employee either because he has not served the notice period or has served a short notice, as per the terms of his employment, it can be recovered on the basic pay or gross pay as specified in his letter of employment. Normally, it is the basic pay. However, if it is gross pay, he needs to pay back to the Company the basic salary and all allowances. PF does not come into play since he has earned nothing; it is just the opposite. Clearly, deductibles of PF, ESI (if applicable), Gratuity, etc., are not recoverable.

Calculations for recovery are done accordingly. The Company can insist on the recovery or still waive it off, as deemed appropriate by the Management/HR department.

In short, no notice pay would attract the deduction of PF or recovery in lieu thereof.

Hope the clarification helps.

Regards,

Rahul Kumar

Dear All,

Please consider the following points: Firstly, we are paying x amount as notice pay in case the employer terminates the employee, and we are recovering x amount if the employee resigns from the organization. Such amounts do not fall under the definition of SALARY/WAGES, and no PF deductions are to be made.

Secondly, the calculation of the notice pay can range from one month to three months, depending on the organization's size and strength.

Regards,
Dabas

Dear All,

Can I get the Mumbai High Court judgment copy regarding this discussion?

Regards,
Amar

Dear Senior,

Please help me in this matter as our management is asking for the Mumbai High Court judgment for "PF deduction on notice pay."

Regards,
Amar

Dear Sonia,

No need to deduct PF on notice pay. The EPF contribution attracts only on the earned wages, not on such ex-gratia payments. Such payments are not earned but are being paid as per the contract of service or terms of employment. Therefore, PF will not be deducted on Notice Pay. Moreover, please read the definition of wages in Section 2(b) under The EPF & Misc. Provisions Act-1952. It is clearly stated on earned wages while on duty or on leave. Notice period payment does not qualify as wages or earned wages. So, never deduct PF on notice pay.

Thanks,
Arif Khan
9891578605

Dear All,

Please clarify the above-mentioned subject issue. In one of our client organizations, the employer terminated the employee with a three-month notice period and basic pay for three months in lieu. For this three-month period, do we have to deduct the Provident Fund contribution of the employee or not? If we deduct the contribution from the employee, how can we show the last working day (for the three-month termination period) as per the Provident Fund Act?

Regards,
Sudheer

Dear Friends,
As per EPF Act-1952, Sec-2(f) “employee” means any person who is employed for wages in any kind of work, manual or otherwise, in or in connection with the work of an establishment and who gets his wages directly or indirectly from the employer.
Above section clearly specify that employee getting wages directly or indirectly from employer, why PF will nit Deduct from Notice Pay.
Thanks & Regards,
Manas Ranjan Pal
HYDERABAD
Mob: 9052800665

Dear Srinu,

If your Basic+DA is above ₹15,000, then you can be exempted from PF contribution; otherwise, it's mandatory to contribute 12% of your Earned (Basic + DA).

Regards, Vipin Singh 9923570399

Please share if PF should be deducted from Gross salary or wages instead of Basic + DA. Can the department demand a short for the same?