In such cases, it is advisable to include a special allowance to fix the PF qualifying salary since the basic wage alone is much lower and may not be accepted by the PF authorities. However, if you can prove that the special allowance is paid to certain categories of employees only and is paid for some special skill hired, you can avoid it. But it is a matter to be debated what kind of special resource is available in an employee whose basic wage is just Rs 2500. Above all, it is a time when a heated discussion is taking place around the definition of wages as given in the EPF Act, and the authorities are trying their level best to enforce payment of contributions at least on minimum wages.
For your information, let me also quote some court verdicts. The Madras High Court in R Ramanathan Chettiar Jewellers, Madurai vs. Regional PF Commissioner, Madurai – 1988 (ii) LLJ 045, has held that where the special allowance is not paid under a contract of employment, settlement, or award but paid purely out of management's own will and pleasure, then such a special allowance would not be taken into account for the purpose of calculating contribution payable under the Act. This ruling stresses that a payment which is not of a regular nature and is paid purely at the discretion of the management would not be available for PF contribution.
In Associated Cement Company Ltd. and Ors. v. R.M. Gandhi, Regional Provident Fund Commissioner, Gujarat (1995-III-LLJ(Suppl.)-368), it has been held that ad hoc payments made to 'eligible employees and not to all employees' under agreement do not form part of basic wages for PF contribution.
The Apex Court, while giving a verdict in Bridges and Roofs (India) Ltd Vs. Union of India [1963 (2) LLJ 490], has said that "it seems that the basis of inclusion in Section 6 (of Employees Provident Fund and Miscellaneous Provisions Act, 1952) and exclusion in Clause (ii) is that whatever is payable in all concerns and is earned by all permanent employees is included for the purpose of contribution under Section 6, but whatever is not payable by all concerns or may not be earned by all employees of concern is excluded for the purposes of contribution."
The above verdicts support that if a special allowance is paid as a special case to some employees, it will not form part of the PF qualifying salary. At the same time, if it is common to all employees by virtue of an agreement with all employees or a settlement, then it will be deemed to be a part of the salary on which PF is to be contributed.
Regards,
Madhu.T.K