Understanding PF Contributions: Should It Be Based on Gross or Basic Minimum Wages?

Will you please explain to me whether it is mandatory that gross minimum wages should be taken for PF contribution, or is it okay that the contribution of basic wages of the gross minimum wages be taken?

The EPF contribution should be deducted from the "Basic wages" as per the definition of the act. Please note that it includes certain allowances but excludes HRA and Washing allowance, subject to the maximum ceiling amount of Rs. 6,500/-. There is no fixed condition or percentage in the splitting of wages under various heads; it all depends on the company policy. However, the amount of HRA should be reasonable according to the place of living.

Regards

Recent Court Judgment on PF Contributions

There is a recent judgment in the case of G4S Security Services vs. PF Dept. G4S was paying PF based on basic pay, which was lower than the minimum wage. However, they were also paying allowances, resulting in their gross pay being higher than the minimum wage.

The court held that an organization should not be able to pay allowances if they cannot meet the minimum wage requirement. Therefore, the sum of basic pay and DA should exceed the minimum wage, and accordingly, PF should be paid based on the minimum wage.

In a recent judgment by the Madhya Pradesh High Court, it was ruled that all allowances paid to employees, excluding HRA, bonus, and commission, will be subject to PF contributions.

Warm regards,
Kathir

Could you please explain your problem clearly? Generally, the PF amount is deducted based on (Basic + DA + Retaining Allowance, if any). Minimum wages consist of Basic and DA components.

Kindly provide a detailed explanation of the issue.

Regards,
Ratikanta Rath

The problem can be clarified with the following illustration:

Case #1
Minimum Wages of ABC Company = Basic = 3600; VDA/DA = 2400; Total = 6,000
EPF Payable (single share): 6000 * 0.12 = 720

Case #2
The ABC Company splits minimum wages as follows:
Basic = 2400; VDA/DA = 1200; HRA = 1000; Others = 1400
EPF contribution is made on (Basic + VDA) i.e., (2400 + 1200 = 3600)
3600 * 0.12 = 432

The stand of the EPF enforcing authority is that the EPF contribution is payable only on the total minimum wages subject to the maximum ceiling amount of Rs. 6500/- (i.e., Rs. 720 for a single share). Whereas, the ABC Company bifurcates the minimum wages to make a short payment to EPFO (i.e., Rs. 432).

Thank you.

I have found two announcements: one is a newspaper cutting, and the other is a letter from the PF department. Both contain contradicting information. One states that you don't need to correlate minimum wages with Basic + DA, while the other says otherwise. I would like to seek the views of experts and seniors on this matter. Since the newspaper cutting is more recent, the latest information takes precedence from a chronological perspective.

I kindly request you to consider this situation and shed some light on it.

Regards,
Preetam Mehta
[Phone Number Removed For Privacy Reasons]

I have already seen both attachments. First of all, no authority will accept any paper cuttings when considering any PF dispute case.

Updated Circular Information

Your second attachment is the old one. Currently, that circular is being kept in abeyance. I am attaching the updated circular for your reference.

Regards,
Ratikanta Rath

What is the minimum wage in Delhi for PF contribution? Our PF registration is in UP, and our head office is in Delhi. Should our PF contribution be as per the minimum wages set by the UP or Delhi government?

Regards,
M.S. RAWAT

Please refer to the recent judgment of the Delhi High Court. Splitting of minimum wages for PF contribution is allowed.

Regards,
Y. Kesava Reddy

Dear All,

It is possible to calculate PF on a reduced amount of basic and DA under the Contract Labour Act.

Example: If an employee (Off roll) has a basic + DA of Rs-13500 per month, it is possible to calculate as per the minimum wage, like basic + DA (Rs-8758 per month).

Kindly arrange to provide any Gazette or Notifications for the same.

Regards,

M S Chouhan
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