Navigating PF Deductions in the Restaurant Industry: What Are the Rules for Salaries Below ₹15,000?

Employee Benefits in the Restaurant Industry

We are in the restaurant industry in Kerala with an employee strength of 248. Employees earning below ₹15,000 are given PF and ESI benefits. We have a salary structure split into various components such as Basic, DA, Washing Allowance, and Special Allowance. As a restaurant, we provide accommodation and food for employees. The basic salary is fixed as per the minimum wages act.

Taking the case of a utility boy who earns a salary of ₹8,000, his Basic would be ₹3,200, DA - ₹3,500, Washing Allowance - ₹500, and Special Allowance - ₹800. We paid the PF on (₹3,200 + ₹3,500), with the employee's share being (₹6,600 * 12% = ₹804) and the employer's share being (₹6,600 * 13.61% = ₹898).

PF enforcement officers are insisting on paying the entire amount, i.e., ₹8,000, or else a 20% deduction on Basic + DA as HRA (₹8,000 - ₹804 = ₹7,196). This would make the employee's share ₹864 (12%) and the employer's share ₹979 (13.61%). Since we provide accommodation to employees, we cannot claim HRA under the salary head. The cost even rises to ₹960 (12%) and ₹1,089 (13%).

Clarification on PF Deductions

Is there any order as per the PF Act that, when the ceiling limit was raised from ₹6,600 to ₹15,000, states only HRA can be deducted? Or are there any existing orders relating to PF stating only Basic + DA can be considered for PF deductions?

It is being heard that there is an order from the Finance Ministry stating Basic + DA is to be deducted.

Please help in this regard.

Regards,
Suresh
[Phone Number Removed For Privacy Reasons]

Understanding Basic Salary in the PF Act

The definition of basic salary in the PF Act remains the same, but there is a proposal to amend it. With the amendment, all allowances paid to employees in general, except HRA, will become part of the PF qualifying salary.

As per the Employees Provident Fund and Miscellaneous Provisions Act (Section 6), PF is payable on basic wages, dearness allowances, and retaining allowance (if paid). The term "basic wages" given in this section is often misunderstood as being confined to the basic wages per the company's pay structure. However, it has a broader meaning as defined in Section 2(b) of the Act. According to Section 2(b), basic wages mean all emoluments earned by an employee, excluding the following:

• Cash value of the food concession
• DA, HRA, overtime payments, commission, bonus, or similar payments
• Any presents made by the employer

Of these, DA is taken separately as a component of the PF qualifying salary under Section 6 of the Act, and all other allowances except HRA and OT wages will form part of the basic salary.

In a pay structure like the one given by Suresh, there is another problem concerning special allowances. In various court verdicts, such as [R Ramanathan Chettiar Jewellers, Madurai vs. Regional PF Commissioner, Madurai – 1988 (ii) LLJ 045], [Associated Cement Company Ltd. and Ors. v. R.M. Gandhi, Regional Provident Fund Commissioner, Gujarat (1995-III-LLJ(Suppl.)-368], and [Bridges and Roofs (India) Ltd Vs. Union of India (1963 (2) LLJ 490)], the courts, including the Supreme Court (in the Bridges & Roofs case), have ruled that if a (special) allowance is paid commonly to all employees, it will be treated as part of the basic salary. If it is paid only to some employees considering the nature of their duties or purely out of management's own interests or pleasure, then it should not be considered as part of wages for PF contribution. I don't think that the management will pay something with pleasure to utility boys so that this special allowance can be excluded from contribution.

The matter of bifurcation of salary, though with various courts including the Apex Court, may be decided in favor of PF authorities only because this is a social security legislation benefiting the employees. Therefore, my advice is to pay it on the gross salary.

Regards,
Madhu.T.K