Can We Split Minimum Wages into Basic, HRA, and Allowances for PF Calculation?

Respected Seniors,

I need a little attention from your valuable time. Many times, I have heard that the basis for PF calculation depends on the Minimum Wages declared by the respective state government.

Question on Bifurcating Minimum Wages

My question is, can we bifurcate minimum wages further into Basic + HRA + Special Allowance? For example, if the Minimum Wage is ₹6000, can we decide Basic = ₹4000, HRA = ₹1000, Special Allowance = ₹1000, and calculate PF on ₹4000, i.e., (₹4000 x 12%) = ₹480?

Your valuable guidance can clear the confusion in my mind.

With Warm Regards,
Vikas Sharma
Asst. Manager - HR
(M) - [Phone Number Removed For Privacy Reasons]

Mr. Vikas Sharma, we can bifurcate the minimum wage, but the EPF is calculated based on the minimum wage. For example, if it is set at 6000, the EPF contribution will be 12% of 6000, not 4000. This basic amount can be used for paying bonuses or for calculating gratuity.

In minimum wages, the basic and other allowances are mentioned, so the basic pay should not be less than the basic pay mentioned in the MWA. Seniors, please correct me if I am wrong.

Understanding Minimum Wage and PF Calculation

As per the Minimum Wages Act (MWA), the gross rate should align with the prescribed rate of minimum wages (MW), which is the sum of Basic and Special Allowance (Spl. All.). Therefore, if the MW (Basic + SA) is Rs. 6000/-, then the gross rate should not be less than Rs. 6000/-. Further bifurcation can be done, such as Basic = 4000; HRA = 1000; and Conveyance = 1000, etc.

The PF authority cannot enforce that the Basic should match the Basic prescribed under the MWA because the MWA itself is silent on this subject. It is not mentioned in the Act that your Basic or Special Allowance should adhere to the Basic or SA prescribed by the State Labour Office. The Punjab & Haryana High Court has rejected the plea of the Regional Provident Fund Commissioner (RFPC) to include components such as HRA, Conveyance Allowance, Washing Allowance, Bonus, etc.

Regards,
Rizwan Sothe

Methods for Fixing Minimum Wage

The state government can fix the minimum wage (MW) in the following ways:

• Basic plus DA, or
• Basic with or without DA plus cash value of items, or
• All-inclusive rate allowing for basic, DA, and cash value.

Please check how your state has fixed the MW and then determine the basic amount. It is important to note that for PF recovery, the basic amount alone is not considered.

Regards,
Varghese Mathew
[Phone Number Removed For Privacy Reasons]