Is It Legal to Split Minimum Wages for PF Contributions? Has Any Industry Tried This?

Dear members, can PF contributions be paid by splitting minimum wages? Has any industry started this practice, or is it legal now?

Regards,

Yes, you can split minimum wages, but you cannot split minimum wages in Gurgaon only because the commissioner in Gurgaon has issued a notification stating that you cannot split minimum wages.

Regards, Brijesh Saxena

Dear Naresh,

As per the Honorable Supreme Court judgment, minimum wages consist of basic + DA/VDA, so they can't be split; rather, contributions will be paid in full. If you are splitting the same, prosecution will be conducted under Section 7A of the EPF & Miscellaneous Provisions Act.

Thanks & Regards,

Sumit Kumar Saxena

[Phone Number Removed For Privacy Reasons]

Difference in Wage Definitions

The definition of wages in the Minimum Wages Act and the definition of wages in the PF Act are different. Please refer to the recent judgment of the Supreme Court. Minimum wages can be split up for PF contribution.

Yes, see the recent judgment of the Punjab and Haryana High Court, wherein the EPFO went for an appeal against the impugned order of the same court earlier on the decision of a single judge. Two-member judges passed an order stating that the Minimum Wages Act, 1948, and the EPF & MP Act, 1952 are two different Acts. One cannot interpret the Basic wages as they feel like.

See the judgment of the P & H High Court.

However, there are two other judgments (Madhya Pradesh High Court and Madras High Court) that are against this concept. It means they have given judgment in favor of EPFO, i.e., to include all allowances in the basic and pay contribution. Against this order (Madras High Court), the employers have gone for an appeal in the High Court, and the hearing is posted on the 26th or 29th (I do not remember correctly). We will come to know once this is heard.

Hitherto, organizations (including ours) are practicing the splitting of Minimum Wages. We are continuing with the same concept unless and until there comes a clear-cut ruling.

It is your wish whether you want to split Minimum Wages or otherwise.

Regards, Balaji

No, the minimum wage can't be split, and the deduction of EPF is done on Basic + DA/VDA + Food Conc. (if any). If the minimum wage is a component of the same, how can it be split? Please forward a copy of the judgment to me so that we can go through it.

Thanks & Regards,

Sumit Kumar Saxena
[Phone Number Removed For Privacy Reasons]

Assume Minimum Wages in a particular state are Rs. 5500/- (a hypothetical figure, okay?). You (we) are splitting this as:

- Basic: 2000/-
- HRA: 1500/-
- Conv: 800/-
- CCA: 1200/-
- Total: 5500/-

...and paying PF contribution of Rs. 240/- p.m.

Judgments on Splitting Minimum Wages

1. As per the Punjab and Haryana High Court, THERE IS NOTHING WRONG IN DOING IT as above. Please see my attachment now (previous judgment), and the recent judgment in my previous post.

2. Also, see other judgments of Madhya Pradesh (attached now) and Madras High Courts (this is voluminous and will send later).

3. Chronological Order of Judgments

- Punjab and Haryana High Court judgment - favoring employer - 01/02/2011
- Madras High Court favoring EPFO - 07/06/2011
- Madhya Pradesh High Court - favoring EPFO - 21/06/2011
- Punjab and Haryana High Court - favoring employer - 20/07/2011

You would understand there is a huge confusion in the orders themselves. You go through the same and come back to me.

Regards,
Balaji

Madras High Court Order Favoring EPFO

Here is the Madras High Court order favoring EPFO. Read all judgments.

Regards, Balaji

Minimum Wages and PF Contributions

Minimum wages cannot be split for PF contribution. PF calculation is done on minimum wages plus basic salary. However, there was a recent proposal that all components of salary should be included in the calculation of PF contributions.

If the minimum wages after PF deduction are less than the minimum wages as per the government's notification on minimum wage rates, then such deduction shall be null and void. On the other hand, if the minimum wages are higher than the government's notified minimum wage rate, then the deduction shall be considered correct and valid.

Kindly refer to the Minimum Wages Act for more details.

Regards,
Octavious

Hi all, there is a lot of controversy on this subject, and nobody could find a definition for this. It can be interpreted in any way. However, in the recent notification from EPFO dated 23.05.2011, it clearly states that for the PF contribution, at least the minimum wages must be maintained and cannot be split. I have enclosed the notification for your reference.

But the problem here is that all the PF officials are following section 2(b) of the act, which states that all allowances paid should be included for PF contribution. However, according to the recent notification, it's only the minimum wages. But as per officials, you have to read both sections together, i.e., section 2(b) and 7.

However, as mentioned, a lot of interpretations are happening, and many companies are getting affected. I am also fighting with EPFO for clarity as we received a notice for not contributing conveyance allowance.

Regards,
Pradeepan

The whole problem started only after the circular issued by EPFO. The PF office cannot have locus standi to issue such an order. The Act is enacted in the Parliament, and if any changes are required, they are to be issued by the government. And that is where the problem lies. Everyone has their interpretation. Even in court orders, there seem to be differences of opinion between judges (which is why we see different judgments in different courts).

Do not get confused. Wait until the end of this month. There is a hearing coming in the Madras High Court against the order issued earlier. The matter will be thrashed out. We will know—as an employer—what to do. Have patience.

Regards, Balaji

Dear Balaji, someone raised the question in Lawyers Club India also based on the extant judgment of the Punjab Haryana High Court. I replied to that question in the Experts column as well.

In fact, any judgment of a court becomes applicable only to that specific case in which the judgment is made, unless specific orders of the competent court are in place to apply to all similar cases, or formal amendments in the relevant law are made by the Parliament, or the head of the Nodal department (in this case, the EPFO in PF cases) issues specific orders to that effect.

Since neither the Parliament made any changes in the law, nor has the Commissioner issued any orders to make it applicable generally to all organizations, the effect of the judgment would remain restricted to the concerned organization in favor of which the orders have been issued. Furthermore, since the judgment is very recent, the EPFO, if it decides so, can also file an appeal in the Supreme Court against the said judgment.

In my view, it cannot be assumed to be effective generally for all organizations unless the concerned organizations are unable to obtain specific judgments individually in their favor based on the existing judgment.

Your comments would be valuable; if you have a differing opinion, please share.

Minimum Wages and EPF Contribution

It is unjust to split minimum wages for the sake of EPF contribution. It has never been practiced in the past to split minimum wages when it was Rs. 1500/- or Rs. 2000/-. If the employer is paying allowances on minimum wages, then that can be acceptable.

Regards,
Jimmii d

If you have a closer look at the circular floated by EPFO (from where the issue has started), you would understand they invoked certain judgments passed in cases such as RPFC, Punjab Vs. Shibu Metal Works, Crown Aluminium Works Vs. Workers Union, Kamani Metal Works & Alloys, and the civil appeal in the case of Air Freight Limited Vs. the State of Karnataka and Others.

It is a common phenomenon that whenever such disputes take place, there is a tendency to quote the judgment or decree issued in favor or against that particular concept.

When EPFO issued the circular, they quoted all the above cases justifying their requirement of the inclusion of all allowances in the basic wages and sought contributions on allowances.

When EPFO refers to such cases, it is also possible for employers to quote certain court judgments supporting their claims. Therefore, it is common for anyone to refer to cases.

What I am trying to say is that there are different views in different forums, and the question now is who is the deciding authority. When the Act is enacted in Parliament, whether EPFO has locus standi to issue such circulars and whether it has any merit is a pertinent question. If EPFO initiates an inquiry against employers and passes separate orders for each inquiry initiated against such employers, and every employer has to approach the High Court/Supreme Court and obtain orders against such decisions, where does it end? Therefore, in my opinion, there should have been a clear-cut rule passed by Parliament regarding this issue with more clarity. Unless this happens, the EPF Tribunal, High Courts, and Supreme Courts will be flooded with appeals and claims. How many of us (employers) are ready to spend your productive time in tribunals and courts?

Please refer to the letter sent to EPFO, Delhi by Mr. H.L. Kumar, who is also an advocate like you, and who runs a big organization "Labour Law Reporter." I read the letter, but I do not have a copy of it at this point in time. (I will post it later). Mr. Kumar sought certain clarifications regarding this issue, but I do not think he has received any reply from them until now.

The circular issued by EPFO and court judgments have been floating around only to confuse and further complicate things, providing no solution. In the whole process, employers are harassed, and nothing more.

Regards, Balaji

Dear Balaji, Please don't get confused, as only the EPFO has the authority to issue clarificatory circulars even on the basis of judgments. However, a particular judgment does not apply to any other organization other than the organization referred to in the case until the EPFO acknowledges the universality of the judgment and agrees to apply it to all organizations. Therefore, any organization, other than the concerned one, cannot presume the judgment's applicability unless specifically affected by a court order or the EPFO.

Dear all,
After reviewing the judgments of various high courts and the official order issued by EPFO on behalf of the Supreme Court of India, I must express my opinion that the minimum wage should not be split. As far as the judiciary is concerned, a high court cannot overrule a Supreme Court judgment. My view is firm that the minimum wage should never be divided, and contributions should be based on the same.

Thanks and regards,
Sumit Kumar Saxena
[Phone Number Removed For Privacy Reasons]

Dear Octavious,

Of course, nobody can teach any person unless they have the desire to understand reality by shunning their wrong concepts. But I wonder, what did you want to convey by pasting a link about "jurisdiction of the Supreme Court" when I never raised any doubt about the jurisdiction of the Supreme Court? Not only that, the site does not refute my conviction in any way. It also does not confirm your views and does not stress the judgments of the High Court to have wider application unless ordered to be made so. Therefore, I am unable to understand how the site has any connection with my last reply.

Still further, the link refers to Article 133, which I quoted in my last reply, as you avoided quoting while referring to other articles. That itself confirms my conviction to be true. Not only that, when I tried to make you aware of the repealed Articles, you came forward with your afterthought that "the repealed post has been put there for you to search the reason and process behind the repeal, so that you get the idea of how things have evolved in the judiciary over time," which you never intended in your original post. By such statements, you cannot falsify the realities. CAN YOU JUST MAKE ME UNDERSTAND WHAT I, YOU, OR THE OTHER COMMUNITY MEMBERS WOULD DERIVE BENEFIT FROM SEARCHING FOR THE REASON AFTER 33 YEARS OF THE REPEAL OF ARTICLES 33? Had you known any reason behind their repeal, you were welcome to quote it not only for my knowledge but also for the benefit of the community members in general. Naturally, the said articles did not contain anything that could prove that the High Court Judgments or the Supreme Court judgments should not be implemented.

To be very frank, had you wished to maintain the decorum of the forum, you, as a super moderator, could have conducted proper research before declaring my statement as fallacies, rather than trying to declare my views as fallacies, on which I have already offered myself to face any court case from your side to prove me wrong.

You may also like to review your own earlier statement “discussion is an exchange of knowledge; an argument is an exchange of ignorance.” I merely discussed the Articles quoted by you, as your contentions were being side-tracked to the jurisdiction of the Supreme Court, not the applicability of the P&H High Court judgment on the split-up of wages for PF. Regarding arguments, what is your opinion about the advocates of both sides making arguments to attract the attention of the judges, right from the lowest court to the Supreme Court, and the argument of one side is accepted even by the Supreme Court? Do both sides exchange their ignorance, while even the Supreme Court agrees on the ignorance as its knowledge and bases its judgment on that? I BELIEVE, EVEN DISCUSSION SOMETIMES EXCHANGES MERE IGNORANCE, WHILE ARGUMENT MAKES THE OTHER FELLOWS UNDERSTAND HIS VIEWPOINT LEADING TO ENHANCEMENT OF KNOWLEDGE.

Regarding your allegation "that you tend to get personal in a professional debate, and start making personal remarks," it is nothing except your bias and misunderstanding about me. Contrarily, your own post conveys that sense of making personal remarks, while you stated in your yesterday's post, "You tend to commit fallacy when you say that a judgment in any particular case applies only to that particular case only, not to all other organizations, until that is ordered so by the competent court, or by way of amendment to the relevant law, or when the organizations decide to apply uniformly to all the organizations."

I wish, by virtue of being a super moderator and senior member, you could have shown your super knowledge, rather than any bias after properly interpreting the legal and constitutional requirements.

Anyway, thanks for your caution. BUT I know, I do not try to reply unless I understand the implication of the relevant law. I also admit mistakes wherever I am wrong.

However, if you feel some irritation with my replies on CiteHR, I can avoid posting my replies on CiteHR. Of course, I have already reduced my activity on CiteHR due to the fact that some members don't relish my pointing out wrong information, where they expect me merely to endorse their opinions, irrespective of how wrong they may be.

Regards,
PS Dhingra

Dear friends, please see the communication we received regarding the contribution of PF on allowances.


The first bench of the Madras High Court has stayed the order of a Single Judge passed in The Management of Reynolds Pens India Pvt. Ltd., Kancheepuram and Others vs. The Regional Provident Fund Commissioner-II, Chennai, 2011 LLR 876, holding that the employees' provident fund contributions were payable on various allowances like Conveyance Allowance, Education Allowance, Special Allowances, Food Concessions, Medical Allowance, Special Holidays, Night Shift Incentive, and City Compensatory Allowance. The stay order was passed in the presence of the counsel for the Provident Fund Department. No next date has been fixed for the final hearing of the appeal.

The Review Petitions before the Madhya Pradesh High Court against the orders in Montage Enterprises, 2011 LLR 867 & Surya Roshini Ltd. etc., 2011 LLR 568 etc. pertaining to various allowances are fixed for 14th October 2011.

Labour Law Reporter

A-43, Lajpat Nagar-2, New Delhi-110 024
Ph. 011-29830000, 011-29840000, Fax No. 011-41727788
E-mail: labourlawreporter@vsnl.net <link updated to site home> (Search On Cite | Search On Google) Website: www.labourlawreporter.net

Balaji

Dear Sir,
The situation is as below:

Our registered hospital address is in Chennai, where we have an EPF code, and our branch hospital is commencing in Pune, Maharashtra. We have around 40 staff at the Pune hospital, and all are going to be EPF members. As per norms, PF deduction is on basic + DA. My question is which minimum wage is to be considered for this, either of Tamil Nadu or Maharashtra.

Please help me out and also let me know what is the CORRECT CURRENT MINIMUM BASIC WAGE and DA for hospitals in Maharashtra, as I found different figures on various websites.

Thank you in advance.

Dear Friends, Greetings! Do any of you have a copy of the stay order given by the Madras High Court on writ petitions filed by The Management of Reynolds Pens India Pvt. Ltd., Kancheepuram, and Others vs. The Regional Provident Fund Commissioner-II, Chennai, 2011, on the PF – Minimum wages issue? If you have it, could you please share it?

Subsequent to that, is there any circular made by the Regional Provident Fund Commissioner (Legal/Compliance) saying not to insist until the stay order is vacated?

Thanks & Regards,
K. VICTOR

Dear Balaji,

The assumption laid by you and the copy of the judgment forwarded by you must be noted. The circular issued by EPFO not to split the minimum wage is in the context of the Supreme Court judgment. How can it be overruled by a high court is really a matter of worry.

Thanks & Regards,
Sumit Kumar Saxena

No, you cannot split minimum wages for PF contribution.

Thanks & Regards,
Hema

Dear All,

Regarding employers splitting up minimum wages to reduce PF liability, I personally feel that it is unethical irrespective of what the current law says. If the current law allows such a thing, then it is more of a loophole instead of the original intention, I feel. In our organization (a private hospital), we don't have such a practice.

However, looking at the circular from EPFO, I am confused about one thing. Their main intention seems to be that PF contributions should be made at least on the "Minimum Wage." Further, they explain the concept of "Basic Wage" and say that it should not be less than the former.

So, are they saying that it is illegal/unethical even if "Basic + DA + other components eligible for PF" matches the "Minimum Wage"?

Regards,

Krishna

Note: I found this forum extremely useful and vibrant; hence, I joined as a new member. Also, I am new to management and not an expert in law; pardon my ignorance on some aspects. I would like to humbly ask my questions with experts here and voice my opinion. If my posts are in violation of the spirit of the forum, I request you to guide me.

Dear Mr. Brijesh Saxena,

As you are well aware, we can't split the minimum wage in Gurgaon because the Gurgaon commissioner has issued a notification stating that we can't split minimum wages. Therefore, we kindly request you to provide me with the soft copy of the said notification to my email address [Email Removed For Privacy Reasons].

Thanks & Regards,

Ankush Sharma
[Phone Number Removed For Privacy Reasons]

However, the Supreme Court judgment stands final. So, you can split minimum wages for PF contribution. Even if the PF commissioner opposes it, it cannot stand before the Supreme Court judgment.

Dear Sir,

Greetings for the day.

Earlier, we have quoted that minimum wages can't be split for the PF purpose, but the matter is sub judice in the Supreme Court of India, so it can be split until further order. Notification enclosed for reference.

Thanks and regards,

Sumit Kumar Saxena

Discussion on Splitting Minimum Wages for PF Contribution

There has been a lot of discussion on the matter of splitting minimum wages (MW) for Provident Fund (PF) contribution. In this connection, please find attached a copy of the Supreme Court judgment in Airfreight Ltd v. State of Karnataka, which states that wages must be as per Section 2(h) of the Minimum Wages Act. Section 2(h) of the Minimum Wages Act clearly mentions that wages include House Rent Allowance (HRA). Therefore, it is legal and safer to pay MW consisting of Basic, Dearness Allowance, and HRA.

Moreover, the PF Appellate Tribunal recently held that MW could be split and paid.

Regards, N. Nataraajhan

Dear Member,

Please advise if the minimum wages in Delhi can be split for the PF contribution.

Thanks & Regards,
Mayuri

The controversy surrounding the splitting of minimum wages into basic pay for the purpose of EPF contribution has finally been resolved with the recent ruling of the Supreme Court. The judgment of the Supreme Court is appended below:

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 9284 OF 2013
ASSISTANT PROVIDENT FUND COMMISSIONER ..... APPELLANT
VERSUS
M/S G4S SECURITY SERVICES (INDIA) LTD. & ANR. ..... RESPONDENTS

ORDER

The appellant, Assistant Provident Fund Commissioner, is aggrieved by the judgment dated 20th July 2011, passed by the High Court of Punjab and Haryana at Chandigarh, in an intra-Court Appeal, which was directed against the order dated 1st February 2011, passed by the learned Single Judge, dismissing the Writ Petition filed by the appellant.

Before the learned Single Judge, the appellant had challenged the order dated 15th June 2009, passed by the Appellate Tribunal under the provisions of the Employees Provident Fund and Miscellaneous Provisions Act, 1952. The issue raised by the respondents concerned the liability of the Management under the provisions of Section 7A of the EPF Act. The appellant argued that for the purposes of determining its contribution towards the provident fund, the respondent no. 1 was wrongly splitting the wage structure of the employees and treating the reduced wage as the basic wage, thereby evading its liability to contribute the correct amount towards the provident fund. This argument was rejected by the Appellate Tribunal, the learned Single Judge, and the Division Bench of the High Court.

Mr. Vikramjeet Banerjee, learned Additional Solicitor General, submits that for determining the basic wage under the EPF Act, reference must be made to the definition of the expression 'minimum rate of wages' under Section 4 of the Minimum Wages Act, 1948. This aspect was considered in paragraph 6 of the impugned judgment and was rejected, holding that there was no compulsion to equate the definition of 'basic wage' with the definition of 'minimum wage' under the Minimum Wages Act, 1948.

In our opinion, once the EPF Act contains a specific provision defining the words 'basic wage' (under Section 2b), there was no reason for the appellant to expect the Court to refer to the Minimum Wages Act, 1948, to give it a different or expansive connotation. Clearly, that was not the intention of the legislature.

It is also pertinent to note that a similar issue had come up for consideration in the order dated 23rd May 2002, passed by the APFC under Section 7A of the EPF Act, which was duly accepted by the appellant department as the said order was not appealed.

In view of the above observations, the present appeal is dismissed as meritless. There shall be no orders as to costs.

J. (HIMA KOHLI)
J. (RAJESH BINDAL)
NEW DELHI; AUGUST 17, 2023.

PS C.A. NO. 9284 OF 2013 ITEM NO. 104 COURT NO. 11 SECTION IV SUPREME COURT OF INDIA

RECORD OF PROCEEDINGS
CIVIL APPEAL NO. 9284/2013
ASSISTANT PROVIDENT FUND COMMISSIONER APPELLANT(S)
VERSUS
M/S G4S SECURITY SERVICES (INDIA) LTD. & ANR. RESPONDENT(S)
(IA NO. 104606/2019 - INTERVENTION APPLICATION)

Date: 17-08-2023 This matter was called on for hearing today.

CORAM: HON'BLE MS. JUSTICE HIMA KOHLI HON'BLE MR. JUSTICE RAJESH BINDAL

For Appellant(s)
Mr. Vikramjeet Banerjee, A.S.G.
Mr. Brijesh Kumar Tamber, AOR
Mr. Vinay Singh Bist, Adv.
Mr. Prateek Kushwaha, Adv.
Mr. Yashu Rustagi, Adv.
Mr. Sahas Bhasin, Adv.

For Respondent(s)
Dr. Abhishek Manu Singhvi, Sr. Adv.
Mr. Rakesh Khanna, Sr. Adv.
Mr. Amitabh Chaturvedi, Adv.
Mr. Harvinder Singh, Adv.
Mr. Ankit Monga, Adv.
Ms. Prakriti Jalan, Adv.
Mr. Gagan Gupta, AOR
Mr. Nishit Agrawal, AOR
Ms. Kanishka Mittal, Adv.
Mr. Shrey Kapoor, Adv.
Mr. Anuj Tyagi, Adv.
Ms. Upasna Agrawal, Adv.

UPON hearing the counsel, the Court made the following

ORDER

The appeal is dismissed in terms of the signed order, which is placed on the file. Pending application(s), if any, shall stand disposed of.

(POOJA SHARMA) (NAND KISHOR) COURT MASTER (SH) COURT MASTER (NSH)