Recent EPFO Circular: How Does It Impact Your PF Contributions with Minimum Wages?

I would like to post a very recent circular from the Employees' Provident Fund Organisation, which insists that for the purpose of PF contributions, the minimum wages should not be bifurcated. This means if an employee is paid the statutory minimum wages, the whole of the said amount will attract PF contributions.

Please find the attachment.

Regards,
Madhu.T.K

Thank you for the posting. One question comes to mind when I read this article: What will happen if the minimum wage is above Rs. 6,500? Should the employer restrict PF contribution to Rs. 6,500, or should they pay PF contribution based on the minimum wage, since, as per the circular, the entire minimum wage attracts PF contribution?

Regards,
Arun John Cherian

I don't think that for any scheduled employment, the minimum wage is more than Rs. 6500. But, of course, in due course, the minimum wage will exceed Rs. 6500 because it is linked to the cost of living index. For many categories of employment, there is a chance that it would surpass Rs. 6500. If so, naturally, it will be capped at Rs. 6500 until the PF Act itself is amended. There is a move to increase the statutory limit of salary.

One more thing. The circular itself states that the authority to decide the salary for PF contribution purposes lies with the PF authorities. As such, an enquiry under section 7A of the Act will be conducted, and the liability will be determined.

Regards,
Madhu.T.K

In the above-mentioned case, for employee PF contribution, there is a ceiling of Rs. 780 (12% of Rs. 6500). If an employee willingly wants to contribute more than that amount, it falls under the voluntary PF fund.

I would like to know whether the contribution under the voluntary PF fund is considered as a separate account or continues in the same one.

Thank you.

Regards,
Mondon

Clarification on PF Contributions

Both the statutory and voluntary PF are remitted in the same account. Let me also clarify that a contribution above Rs 6500 is not considered a voluntary contribution, whereas when an employee contributes at a rate higher than 12%, that is considered a voluntary contribution. These contributions will also go through the same account.

Regards,
Madhu.T.K

Dear Madhu, Thank you for updating the recent changes and for continuing to post updates in the future. I have a query regarding the applicability of these changes to contractors employed for short durations and casual workers. As we discussed two days ago, many of our contractors are not complying with the new regulations.

Formal Communication to Contractors

Do you suggest sending a formal communication to them instructing them to adhere to these changes? I am looking forward to your suggestions and feedback.

Best regards,
[Your Name]

Yes, it would be applicable to contract labor because the contractor is also expected to pay minimum wages and comply with all statutory formalities connected with the labor he employs.

Regards,
Madhu.T.K

As stated, if the minimum rates of wages are more than Rs 6500, the employer can restrict contribution to Rs 6500 notwithstanding any higher minimum wages. Please remember that the EPF Organisation is not the authority to enforce minimum wages. If the company is paying an amount much lesser than the minimum wages (say Rs 2000 per month), but at the same time, PF is being contributed on the entire amount (i.e., Rs 2000) without further bifurcating the wages, then PF authorities should accept it as a genuine contribution and question the actions of the employer. PF cannot direct employers to pay minimum wages. The responsibility to enforce the minimum wages rests with the State labor department only.

Regards,
Madhu.T.K

In the extension of my query, I want to know one thing: if an employee shares more than Rs 780/- in his PF account, then already his contribution becomes higher than 12%, and it comes under voluntary PF contribution. Contribution above Rs 780/- means how do we calculate it, and where is it remitted? Please clarify the same.

Thanks.

Regards,
Mondon

I hope I have already provided an explanation to your question that any contributions related to statutory matters will be remitted to the same account only.

Regards,
Madhu.T.K

Attached Documents on Provident Fund Contributions

Attached herewith:

1. A copy of the representation/objections submitted by Labour Law Reporter to the Circular of Employees' Provident Fund Organisation on the splitting of wages for Employees' Provident Fund contributions.

2. A gist of the ruling by the Madhya Pradesh High Court on conveyance allowance and special allowance, which has to be considered for the determination of provident fund liability.

For your information and knowledge.

Thanks with Regards,

Keshav Korgaonkar

http://www.shantadurgaent.com, Welcome To Shantadurga Enterprises

Cell: [Phone Number Removed For Privacy Reasons]

Dear seniors, can anyone guide me on whether minimum wages can be bifurcated into different allowances, such as HRA and conveyance, etc.? Is PF contribution calculated based on the total salary or on basic wages + D.A.? Please guide me regarding this.

Best regards,
Rajnish

Judicial Review of EPF Circular on Minimum Wages

The Delhi High Court and AP High Court have, by separate orders dated 30-08-11 and 29-09-2011 respectively, stayed the circular No.: Coord/4 (6) 2003/Clarification/Vol-II/Dated: 23-05-2011 of the EPF Organisation. This circular states that splitting of minimum wages for the purpose of PF contribution is not permissible. With the stay in force, the order prohibiting the splitting of minimum wages for the purpose of PF contribution is under judicial review.

Regards,
Madhu.T.K

Attaching the Circular of the EPF Department, keeping the circular No.: Coord/4 (6) 2003/Clarification/Vol-II/Dated: 23-05-2011 in abeyance in terms of the order of the Delhi High Court.

Regards,
Rajan Law Firm

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