Definition Of Basic Salary For The Purpose Of Pf - PDF Download

Dear colleagues,

I would like to seek your expert view on the issue that we are currently dealing with. As per our current practice, we were deducting PF on the maximum basic of Rs. 6500. However, with the new PF enhancement, PF deduction will now be maximum on the basic of Rs. 15,000. Here we have the salary breakdown as follows:

A) Basic Salary

B) HRA

C) CCA

D) Conveyance Allowance

E) Special Allowance

We are currently considering the basic salary only for PF calculation. Now, I have come to know about the case decision (MP High Court 2011) where it was clearly mentioned that the PF will apply to all the allowances other than HRA, i.e., (Basic + Conveyance Allowance + CCA + Special Allowance). However, it is still not clear as per my understanding (meaning it is under dispute).

In this context, I would like to understand the following:

1. Is it a case where the minimum wage is less than the basic, or will it apply in all cases? (PF on all allowances other than HRA)

2. As per my understanding, while ascertaining the minimum wages, it will be based on Gross Salary (including the basic + all allowances).

I would be highly obliged if you all could please clear my doubt on the above.

With Best,

DKS

Dear Devendarji,

Forwarding a copy of a circular clarifying most of your points.

Thanks, Purohit ji, for your valued inputs. The circular clearly stated that PF will attract on Basic wage only. However, I am in anticipation of some more suggestions on the discussed topic from my other senior colleagues like Purohit ji.

With best,
DKS

Hi,

There is another question on the latest increase from Rs. 6500/- to Rs. 15000/-. If an employee has a salary of more than Rs. 40,000/- per month and his basic is only Rs. 10,000/- (the remaining amount of his salary is adjusted towards HRA, Conveyance, Special Allowance, etc.). Now, as per the new amendment, do we need to enhance his basic pay to a minimum of Rs. 15000/-?

Kindly share your opinion at the earliest.

Regards, Jyothi

Hi Jyothimala,

Your query is advised as follows:

You can split his salary of Rs. 40,000 as per the following formula:

1. Basic salary: 50% - Rs. 20,000
2. HRA: 25% - Rs. 10,000
3. Conveyance: 15% - Rs. 6,000
4. Spl. Allowance: 10% - Rs. 4,000

Now, you can calculate his Provident Fund on Rs. 15,000 as per the ceiling at 12% or actual basic salary at management discretion. Whether to restrict to the ceiling or not.

This is the formula followed by most establishments. Contributing to the Provident Fund above the ceiling or at actual basic salary is also accepted by the EPFO. Due to this, you do not need to bring his basic salary to Rs. 15,000 as there is an option for contributing as per the recent notification issued by EPFO from 1st Sep 2014.

Adoni Suguresh
Sr. Executive (Pers, Admin & Ind. Rels) Retd.
Labour Laws Consultant

How can I comply with compliance without contributing to EPF? Please suggest.