Is It Legal to Split Minimum Wages to Lower PF and ESI Contributions? Seeking Advice

Please advise me whether splitting minimum wages into various heads (Basic, HRA, washing allowance, etc.) is legal for the purpose of reducing PF and ESI contributions.

With regards,
Ashe

Minimum Wages and PF Contribution

Minimum wages should not be split for PF contribution, which is paid on basic + DA. ESIC is paid on gross salary.

Thank you.

Minimum Wage and Allowances

The minimum wage cannot be split at all. In fact, there was a hearing by the High Court in August where it was stated that uniform allowances will also be considered as a part of the basic salary. Consequently, PF will be deducted and paid by the employers on Basic + DA + Uniform allowance thereafter. This ruling applies to both workers and staff. You can inquire about it.

Thanks,
Garima

Prohibition on Splitting Minimum Wages for PF Contribution

Vide Circular No.: Coord/4(6)2003/Clarification/Vol-II/Dated: 23-05-2011, Mr. K.C. Pandey, Additional Central P.F. Commissioner (Compliance) of the Employees Provident Fund Organization (Ministry of Labour & Employment, Govt. of India), Head Office, Bhavrshya Yidhr Bhawan, 14, Bhikaiji Cama Place, New Delhi, prohibited the splitting of Minimum Wages for the purpose of PF contribution.

There is very good news in this regard. The Delhi High Court, in the matter of Pvt Security Industries vs. EPFO on 30-08-2011, by the order of Hon'ble S. Muralidhar, has granted a limited stay on the circular. Similarly, the Andhra Pradesh High Court on 29-09-2011 has granted an interim stay in Writ Petitions filed before the said Court.

Therefore, the Circular No.: Coord/4(6)2003/Clarification/Vol-II/Dated: 23-05-2011 of Mr. K.C. Pandey, Additional Central P.F. Commissioner (Compliance) of the Employees Provident Fund Organization (Ministry of Labour & Employment, Govt. of India), Head Office, Bhavrshya Yidhr Bhawan, 14, Bhikaiji Cama Place, New Delhi - 110 066, prohibiting the splitting of Minimum Wages for the purpose of PF contribution, has now come under judicial review, and its enforcement is subject to the legal decision.

PF Circular and Judgment Copy Enclosed

A copy of the PF Circular along with the judgment copy is enclosed for your ready reference.

Regards,
Sundararaman

For your information, reference, and records, another landmark verdict was given by the EPF Appellate Tribunal in Indore regarding the splitting of Minimum Wages for PF Contribution, which has been a subject of dispute.

Regards,
B. Sundararaman

Please refer to the attachment.