Is PF Calculated on Minimum Wages or Basic Pay? Seeking Clarity and Official Guidelines

Dear Sir and all my seniors,

I want to know if the point of PF is to be paid on the minimum wages or if there are other considerations. Many security firms are paying PF based on the basic amount, which is less than the minimum wages. I also require a notification or copy of the rules regarding this issue.

I am waiting for a positive response.

Dear Mr. Ashok,

Greetings for the day :)

PF is always deducted on Basic. It doesn't matter whether it is higher or lower than minimum wages, but the gross pay should not be less than the minimum wages applicable in that particular industry or state.

Dear Kapil,

Thank you for your reply. I heard during April 2005 that PF is based on basic wages but not less than the minimum wages. I would appreciate more comments on this from all seniors and any related notifications.

Ashok
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Hi, Minimum wages and PF (Provident Fund) are distinct subjects. Minimum wages cannot be split. If you do split them, the Basic and DA (Dearness Allowance) components must comply with the Government's minimum wage requirements. Other components like HRA (House Rent Allowance), CCA (City Compensatory Allowance), and other allowances can be provided in addition to the minimum wages. Therefore, PF must be paid on the minimum wages. Minimum wages cannot be divided into a 60-40% split.

In practice, most companies follow the 60-40% split. However, no PF commissioner will provide written support for splitting the minimum wages.

Hi Poonam,

I agree. There has been a judgment passed in the Supreme Court regarding the hearing of a union cadre stating that the PF has to be paid based on the minimum wages. Therefore, minimum wages should be considered.

Thanks,
Poonam

Dear Poonam,

Greetings for the day:)

I want to inform you that a judgment can't be considered unless it has been amended in the act. Do you have any info about such an amendment or any section/rules which state it is a mandatory thing?

Judgments are appealable.

PF is payable on Basic Pay plus DA. Every employee whose Basic+DA is less than or equal to Rs. 6500/- at the time of joining the employment is compulsorily required to be covered under the Act. Others are not required mandatorily. A copy of the rule and definition is attached. Trust this meets your requirement.

Regards,
Sarath Chandra
Senior Manager

Dear Seniors, In Tamil Nadu, we are facing the same kind of problems in factories (minimum wages split into basic and HRA, and PF deducted on basic + DA alone). Mr. Poonam, can you please post the Supreme Court judgment regarding this controversy? Some of the inspectors of factories and the social compliance auditors are saying PF has to be deducted on the minimum wages. However, when we ask for any mandatory rules from these Dy Chief Inspectors of Factories or Social Compliance Auditors, they do not have a clear idea, but they insist that what we are saying is correct and that you have to oblige.

In this case, can anyone post the relevant PF Commissioners' directions or any mandatory rules that will be useful for us?

Best Regards,
Subiah

Thank you for your interest in my issue. I believe that this deduction should not be lower than the minimum wage, as many companies are currently paying below the minimum wage. Therefore, I seek clarification and justification from the EPF or the labor department.

Dear All,

Please find attached the copy of the PF notification issued by the PF Department. It clearly states that PF is applicable to employees receiving minimum wages.

Thank you.

Do you know the section regarding not being a member of PF whose salary is more than 6500 from the date of joining?

Another thing to consider is whether ESIC is compulsory for a construction company.

I have 2 queries which I am facing regarding the handling of the housekeeping 3PL of my company.

Query 1: Minimum Wages Distribution

The 3PL service provider divides the minimum wages into a 60-40% breakup: 40% Basic + D.A and the remaining 60% into HRA, Washing Allowance, and Conveyance. The gross amount, however, ends up being slightly higher than the minimum wages specified in the Minimum Wages Act in Bengal. The 3PL claims that since they are providing a gross amount higher than the minimum wage, they are distributing it this way. When I inquired why this practice is being followed, they referred to a Supreme Court verdict that supposedly mentions this. However, upon reviewing the verdict, I could not find any clear mention of this practice. Please find the attachment of the verdict for your reference.

Query 2: Bonus Payment Obligation

My next query pertains to bonus payment. Are we, as the principal employer, obligated to pay statutory bonuses to the service provider? Based on my research, if this obligation is not explicitly stated in the agreement, then we are not required to make such payments. Our company does not have any agreement with this service provider. They were unable to provide any valid documentation supporting their stance, except mentioning that other companies have agreed to the same.

Please respond to this issue!

Thanks,

Nivedita Mahapatra

Corrected Spelling and Grammar:
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Karnataka High Court Judgment on PF Contributions

Please find enclosed the judgment of the Karnataka High Court, which resembles the above case. In this matter, the High Court opined that the PF commissioner has the power to determine whether the minimum wages were bifurcated with a view to subterfuge PF contributions and penalize the companies that adopt such practices.

Hope this will be useful.

Regards

Dear Ashok,

I do agree with your comments. Let's understand Minimum Wage (MW). MW should consist of Basic & DA combination; you cannot split MW into many parts. If MW comprises Basic & DA, then it automatically attracts PF on it.

Dear All,

Please find enclosed the judgment of the Supreme Court stating that the minimum wage is one packet of payment and cannot/should not be bifurcated.

Regards,
Ravi

Dear All,

In the PF Act, nothing is mentioned regarding minimum wages for the purpose of PF contribution. PF is deducted on basic pay + DA, and the ceiling for such contribution is Rs 6500/-.

No judgment can automatically become a part of the Act unless the Act is amended to incorporate the judgment.

Kalyan Mitra

The PF contribution has to be paid on the minimum wages irrespective of the naming words. For example, Basic, DA, HRA, and so on. However, beyond minimum wages, the PF may be voluntarily contributed.

Thanks, Poonam

Hi Sunder,

You are right, so this makes it clear that the PF has to be calculated on the minimum wages. This is what I had conveyed in my last post.

Have a good day.

Poonam

Clarification on PF Wage Splitting

Circular from PF HO states that splitting of wages for the purpose of PF is not permissible, as per Circular No. Coord/4(6)/2003/clarification/vol-II/7394 dated 23.5.2011.

Regards,
Ramalingeswara Rao
Sr. Manager (HR)
Hyderabad

PF is always deducted from the basic salary, and it also varies from state to state.

With regards,

Dear All,

We all discuss PF deductions on Basic/DA (MW). But now, in Ambattur, factories are instructed to deduct PF on components other than HRA, including the attendance bonus. For example, if a worker receives a wage of 5500.00 (Basic + DA: 3300, HRA: 1500, other allowances: 700), the factories are instructed to deduct PF for 4000, and the attendance bonus, which varies from month to month.

Please clarify if this is correct.

Dear Seniors,

As ordered by the Provident Fund Commissioner, Haryana does not specify minimum wages separately. However, under the definition of minimum wages, Basic + HRA equals MINIMUM WAGES. Please explain how the PF Commissioner can change the definition of minimum wages under the Act.

Regards,
Ram

Dear All,

Please provide me with the PF circular for excluded employees, i.e., those whose basic salary is higher than 15000/-.

Please reply.

Thank you.

Dear All,

Please provide me with the PF circular for excluded employees, i.e., those whose basic salary is higher than 15000/-.

Please reply.

Thank you.