Does "Other Allowance" in Your Salary Mean More Provident Fund Contributions? Let's Discuss!

Query on Provident Fund Payments for "Other Allowance"

Does "Other Allowance" in the Salary Statement attract Provident Fund Payments?

Ex:
- Basic
- HRA
- Conveyance
- Uniform
- Medical
- Provident Fund (Employer)
- ESI (Employer)
- Others - ?

Total Gross Salary

Regards,
Sravan

Provident Fund Deductions

PF will be deducted on Basic + DA + Retained Allowance. (An allowance payable for the time being to an employee of any factory or other establishment during any period in which the establishment is not working, for retaining his services)

PF contribution is calculated from BASIC + DA and any arrears of the BASIC + DA.

Regards,
Prabahar.M

Dear Sravan, PF contribution is applicable for Basic, DA, and any Special Allowance in the statement of salary.

Regards, Shivnendra K

Go for the definition of wages, wherein you could find that basic wages include all emoluments except HRA, retaining allowance, and cash for concessional food expenses. They have excluded retaining allowance and cash for concessional food in the meaning of basic wages because it has been separately explained in PF workings. PF would be calculated on basic wages, retaining allowance, and cash for concessional food. Hence, I feel conveyance, medical, and uniform allowances would attract PF.

As per my knowledge, PF from both the employee and employer side is calculated on (Basic + DA). Thank you!

Dear Sravan,

Here, PF will be loaded only on Basic. There's no DA mentioned. If you have a DA portion, you have to add DA also.

Regards.

The issue of whether allowances other than Basic and DA should be considered for PF recovery is currently pending in the Madras High Court and the Supreme Court. The final judgment will provide clarity on this matter.

Regards,
Anbalagan.

Definition of Basic Wages for PF Contributions

What is 'Basic Wages' for the purpose of PF contributions? The definition of 'Basic Wages' is provided under Section 2(b) of the EPF & MP Act, 1952, as follows:

Section 2(b) "basic wages" means all emoluments which are earned by an employee while on duty, on leave, or on holidays with wages in either case in accordance with the terms of the contract of employment and which are paid or payable in cash to him, but does not include:
- the cash value of any food concession;
- any dearness allowance (that is to say, all cash payments by whatever name called paid to an employee on account of a rise in the cost of living), house rent allowance, overtime allowance, bonus, commission, or any other similar allowance payable to the employee in respect of his employment or of work done in such employment;
- any presents made by the employer.

From the above definition, it is clear that all the emoluments which are earned by an employee other than those specified are considered as 'Basic Wages'.

Regards

EPFO's Stance on Allowances and Basic Wages

This is the problem that all organizations face today with the EPFO. The EPFO has started issuing notices under Sec 7(A) of the EPF & MP Act, 1952, stating that except for HRA (which is totally excluded from the eyes of the EPFO), all allowances form part of Basic Wages.

This means that whatever allowances you pay to employees without any distinction are construed to be part of Basic Wages. For example, if you pay a conveyance allowance to all employees—irrespective of levels and cadres—then this is also considered as basic wages.

On the other hand, if you pay a heat and dust allowance to certain employees who are attached to the Moulding and Casting section (and not to other employees of other departments), then this allowance is excluded.

So, the EPFO examines all allowances separately to determine whether any such allowances are paid to all employees at all times. If so, then all such allowances form part of the Basic Wages, and a 7(A) order is issued accordingly. They rely on various Supreme Court orders in various cases.

Therefore, as per the EPFO, the allowances paid or payable to all employees (except HRA) form part of Basic Wages. However, this is being challenged by certain organizations. A couple of cases are pending in the Supreme Court.

Regards,
V. Balaji

There shall not be any confusion; there are enough references and clarifications on the "Wages" for the purpose of PF. For more clarity, please go through the attachment.

Regards,
Kumar S.

As per Sections 2 and 6 of the EPF Act, the basic wage of EPF is defined. Please go through it. The PF will be deducted on basic + VDA. PF is not deducted up to Rs. 6,500/-.

Regards,
V. K. Rao

Hello Sarvan!

EPFO is applicable on / is to be deducted on Basic + DA. Other than this, PF can also be deducted on arrears (depends on what type of arrear it is, relating to Basic & DA).