Is PF Deducted from Overtime Pay? Seeking Clarification on Calculation Rules

Dear All, please confirm whether PF shall be calculated and deducted on overtime earnings.

No, PF is not to be deducted on overtime. However, nothing in the act stops the employer and employee from voluntarily deducting an amount higher than statutorily required.

As per the PF Act, the definition of “Basic wages” does not include “Overtime Payment.” Hence, we should not deduct PF on overtime.

PF inspectors are insisting only in the following cases.

Case 1:

Example: Basic 4500 + HRA 1000 = i.e., monthly salary for 8 hours is 5500, but contract laborers are working 12 hours a day. Hence, actual earning is 5500 + 4500 OT (i.e., every day 4 hours working based on this double salary of basic come to 4500). The number of OT hours is not the jurisdiction area of the PF Enforcement officer; hence, he can suggest you correct it.

Case 2:

Basic is 4400 and other allowance is 12000 = Total salary 16500. Hence, the PF enforcement officer suggests correcting the distribution, i.e., increase basic up to 6500.

There is no mention in law about Basic vs. other allowance. Even though if the PF enforcement officer finds that we are trying to keep the minimum basic to avoid PF, he may suggest changes in the structure. The law is silent on Basic vs. other allowance.

Regards,
BrainLight HR Solutions

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Please refer to section 2(b)(ii) of the EPF & MP Act. According to the mentioned section, overtime wages are not considered for calculating PF. However, when it comes to the ESI Act, refer to section 2(22) where wages include total remuneration. Therefore, it is essential not to confuse the two Acts. Overtime wages are not taken into account for PF calculation.

Regards,
S.N. Raju U.

No doubt PF is to be paid on allowance. Also, please go through the attachments for further clarifications.

Regards,
Kumar S.