Provident Fund - Components Of Ctc

Sir,
We are multi location industry having presence in almost all states of India.
For operative catg. of employees our gross salary is slightly higher than prevailing Min. Wages of the respective state.
One of our client informed us that we are violating P.F. as our sum total of Basic + DA is less than Min. Wage as per one of the section of the PF Act.
Requested to please guide (along with remedy) on the same, if it violation of Act.
Also please guide ; what should be ideal ratio of Basic (or Basic + DA) while fixing various components of CTC.
Please reply,
HR Professional

HR Professional - since you are accepting the violation of the labor law, ideal to connect with a labor / p.f consultant and have it rectified. I remember there's a penalty associated with this and would recommend that you pay rather than argue it out with the Commissioner.
Hope this helps.

Hello,
The solution to your issue is as simple as difficult you think it is.
Get hold of the minimum wages details prevailing in area for the kind of industry you belong to. Prepare the remuneration/salary break-up such that the basic rate & DA is slightly more than the one announced in the circular by the Office of the Labour Commissioner / relevant authority in your region. Adjust the remaining components like HRA or Medical Allowance or LTA, PF (mandatory 12% employer contribution), ESIC (mandatory 4.75% employer contribution), bonus (mandatory 8.33% of Basic or maximum of 20% of Basic), etc so that it totals up to your decided CTC.
Generally, this revision announced is with effect from 1st April and/or 1st Oct of every year. So, you would need to pay out the arrears too.
Good Luck.
Cheers, A.B.

"Additional Central Provident Fund Commissioner (Compliance), EPFO, New Delhi has issued Circular No. Coord/4(6)2003/Clarification/Vol-II/7394 dated 23 May 2011 instructing the PF authorities to ensure that PF is deducted on applicable minimum wages. The aforesaid circular escalated controversies pertaining to the definition of Basic wages on which deduction of PF needs to be made.

The definition of “basic wages” as per section 2(b) of the EPF Act makes it clear that allowances and incentives are not to be treated as part of the basic wages. This has been upheld by Punjab and Haryana High Court in a writ petition No.15443/2009 between APFC vs.G4 Security vide order dated 1 February 2011. Punjab and Haryana High Court has opined that minimum wages can be bifurcated into allowances and PF contribution is not required to be deducted on allowances even when the same are part of the minimum wages.

The Circular No. Coord/4(6)2003/Clarification/Vol-II/7394 dated 23 May 2011 regarding splitting of wages for the purpose of PF contribution is kept in abeyance in view of verdict given by Punjab and Haryana High Court in a writ petition No.15443/2009 (LPA 1139 of 2011)between APFC vs.G4 Security vide order dated 1 February 2011 till there is a Supreme Court ruling in the matter SLP(C) NO 20085/2011 filed by EPFO against the above decision of High Court of Punjab & Haryana "

Simple search gives the above result. It seems that matter is still pending before the Hon'ble Supreme Court.

V K Gupta

Dear HR professional
PFA copy of SC judgement in Airfreight Ltd, wherein the SC has clearly mentioned that MW shall be as per Section 2 (h) of the Minimum Wages Act and Section 2 (h) of the Act defines that " Wages " includes HRA and therefore, pl ensure that Bacic, DA and HRA - all put together is more than the MW. In case if you require more details / support, pl contact us.
Regards
N Nataraajhan, Sakthi Management Services (HP : + 91 94835 17402 ; e-mail : [Login to view])

Dear Mr. N Nataraajhan
Kindly attach the SC judgement as referred to by you. (or mail at [Login to view]).
Hon'ble Supreme Court upheld that Basic, DA, HRA are part of Min. Wages i.e. combining all elements/bifurcations of salary/wages should not be less than Min. Wages. For the applicability of Min. Wages Act, this is true.
But in the case of wages/salary definition under EPF, it covers only Basic Plus DA.. Then under which clarification/ruling, HRA/other allowances are to be added for deducting PF contribution.
Thanks
V K Gupta.

Dear All
PFA copy of SC judgement in Airfreight Ltd and definition of MW as per Minimum Wages Act. PF contribution will have to be deducted only on Basic and DA as per PF Act and no contribution is payable on HRA.
Regards
N Nataraajhan, Sakthi Management Services (HP : + 91 94835 17402 ; e-mail : [Login to view])