Is It Mandatory to Adjust Basic Salary to Meet Minimum Wages for PF Compliance?

Recently, our consultant sent the minimum wages payable in a state and opined that the PF deduction should happen at the minimum wages prescribed for that state. Clarification sought is: Currently, the basic salary of employees in this particular state is much less than the minimum wages. However, the monthly salary paid out is at least 25% higher than the minimum wages. The breakdown is as follows: Basic, HRA (40% of Basic), conveyance, special allowance, personal pay, and medical allowance (₹1250 per month).

Clarification Needed on Basic Salary Adjustment

Is it necessary to raise the basic salary of all such employees to the minimum wages now, which is around ₹5900 per month? Is there any mention in the PF Act or any amendment to suggest so? An early reply is highly appreciated.

Regards,
Sreedharan

Yes, you need to receive a basic salary at the minimum wage rate, i.e., 5900/- as per your location. Additionally, PF deductions need to be made on the 5900/- salary.

As per the P.F. Act, the contribution is to be deducted on basic + DA + retaining allowance + cash value of food concession, subject to a maximum of Rs. 6500/- per month. In your case, the retaining allowance and cash value of food concession are not paid, so what counts for contribution is basic + DA. However, some High Courts have held that all allowances other than HRA will also count for P.F. contribution. The decision, as I understand, has been appealed before the Supreme Court.

Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai

CTC and PF Contributions

Should the CTC reflect both the employer contribution and employee contribution of the PF? Is it acceptable by law? Please advise.

Dear Fellow Members,

Most of us are struggling with conceptual conflicts. Please try to understand that the EPF Act does not specify the amount or percentage of Basic + DA / Special Allowance, etc., in short, PF wages. Hence, there is no question of increasing the amount of PF wages according to the amendment of minimum wages.

Understanding Minimum Wages and PF Wages

When you are paying exactly as per the minimum wages of various scheduled employments declared by the state government of Maharashtra or any other state, you have to strictly follow the amount of Basic + DA as PF wages. If you are paying above minimum wages or so-called FAIR WAGES, then simply follow the directives of the court that the employer may decide the amount of PF wages (BASIC + DA). For more details, kindly refer to the thread on Minimum Wages on our HR site.

God will bless all of us.