Notice Pay and PF Deduction: Is There a Legal Precedent Against It?

Kindly let me know whether PF deduction is applicable on the amount paid to an employee as notice pay upon leaving the company. Is there any legal precedent or judgment that states there should be no PF deduction on notice pay?

Thank you.

We have to compulsorily deduct the PF on the notice pay because when the candidate completes their notice period, they may receive their salary at the time of F&F settlement. Until the employee works for our company, we need to deduct the PF. It's mandatory, and so far, there has been no rule exempting PF during the notice period.

Regards,
Vinay Kumar

Dear Vinay, there was a judgment given by our CiteHR member earlier (given below), stating no PF on notice pay. My question is whether there is any other judgment followed by that.

Bombay High Court Judgment on Notice Pay

Dear All, for the benefit of all, I hereby quote the Bombay High Court Judgment in the matter of "India United Mills Ltd. v. RPFC" that a payment made in lieu of notice by way of consideration for terminating the contract of employment of a permanent employee does not constitute "basic wages" under section 2(b) of the PF Act.

The Hon'ble court stated that the expression 'emoluments which are earned by an employee while on duty' represents the amounts actually earned by an employee during the period of his employment while he is actually on duty. The payment in question is not a payment earned for duty done. It is not a payment earned while on duty. It is a payment by way of consideration for terminating the contract of employment of a permanent employee without notice. The payments made cannot in any sense be regarded as representing 'emoluments earned while on duty' and do not constitute 'basic wages' within the meaning of the definition given in the Employees' Provident Funds Act, 1952, and no percentage thereof is payable by way of provident fund contribution.

Therefore, the emoluments towards notice pay do not attract PF.

Hope the above clarification will close the matter for further discussion.

Regards,
Anwar

You are right. The contribution need not be paid. I am enclosing the referred judgment for the benefit of our members.

Regards,
S. Sethupathy
Excellent HR Services
Erode

What Mr. Anwar said above is absolutely right, and it was confirmed by Mr. Sethupathy's attachment. Based on the above replies, HR professionals who are not familiar with the subject (PF deduction on notice pay) can also understand it. Good contribution.

Regards, JP