Navigating PF Deductions: Should It Be Based on Minimum Wages or Actual Salary?

Hi, Experts,

In our company, some of the employees' basic salary is below the minimum wages applicable in the state. Kindly guide me on whether PF should be deducted based on the minimum wages or on the actual basic salary, which is below the minimum wages.

Regards,

Kankit Kumar

PF Deduction on Basic Wages

PF needs to be deducted on basic wages only, not on minimum wages as per the EPF Act. The EPF tribunal has passed orders to this effect. Refer to M/s. Chalet Hotel Pvt Ltd vs. RPFC, Thane ATA No: 17(9) 2013 decided on 21.07.2014.

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Bifurcation of Minimum Wages into Allowances – Not Illegal

An appeal was filed by the appellant before the EPF Appellate Tribunal against the order dated 06.07.2011, passed by the EPF Authority under Section 7A of the Act. This order assessed PF dues and allied dues on allowances, which is illegal. The EPF Appellate Tribunal observed that the employer has bifurcated the minimum wages into different heads like basic wages, house rent, conveyance allowances, etc. The employer has been paying employees' contributions only on the basic wages as provided under the EPF Act, excluding allowances. The EPF Authority pleaded that PF dues can never be calculated on wages lower than minimum wages. Accordingly, the EPF Authority initiated proceedings under Section 7A of the Act, considering the minimum wages under the Minimum Wages Act and directed the employer to pay the contribution so determined. The EPF Appellate Tribunal opined that minimum wages have not been defined under the EPF Act. The EPF Authority has no power to determine whether minimum wages amount to basic wages or not. While interpreting a provision of any Act, the Court only has to interpret the law and cannot legislate it. If a provision of law is misused and subjected to abuse of process of law, it is for the legislature to amend, modify, or repeal it if deemed necessary. There is no compulsion to hold that the definition of 'minimum wages' under the Minimum Wages Act applies. The employer is liable to deduct under Section 2(b) read along with Section 6 of the EPF Act and not on minimum wages as per the Minimum Wages Act. Hence, the impugned order is set aside. The appeal is allowed.

M/s. A.K. Manpower Services Vs. RPFC, Mumbai ATA No.606(9), 2011, decided on 27.07.2011

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Minimum Wages Can Be Split into Allowances, Hence,

EPF Contribution Not to Be on Total Wages

An appeal was filed by the appellant before the EPF Appellate Tribunal against the order dated 14.12.2012, passed by the EPF Authority under Section 7A of the Act, taking into consideration the minimum wages under the Minimum Wages Act. The EPF Appellate Tribunal observed that the employer has bifurcated the minimum wages into different heads like basic wages, house rent allowance, conveyance allowance, special allowance, skill allowance, etc. The employer has been paying EPF contributions only on the basic wages as provided under the EPF Act, excluding allowances. The headquarters office of the EPFO, via circular dated 23.05.2011, has stated to ensure that the PF contribution shall be remitted on not less than minimum wages. Accordingly, the EPF Authority initiated proceedings under Section 7A of the Act, considering the minimum wages under the Minimum Wages Act and directed the employer to pay the contribution so determined. The EPF Appellate Tribunal opined that minimum wages have not been defined under the EPF Act. Only basic wages are defined under the Act. The EPF Authority has no power to determine whether minimum wages amount to basic wages or not. While interpreting a provision of any Act, the Court only has to interpret the law and cannot legislate it. If a provision of law is misused and subjected to abuse of process of law, it is for the legislature to amend, modify, or repeal it if deemed necessary. There is no compulsion to hold that the definition of 'minimum wages' under the Minimum Wages Act applies. The employer is liable to deduct PF contribution on basic wages as defined under Section 2(b) read along with Section 6 of the EPF Act and not on minimum wages as per the Minimum Wages Act. Hence, the impugned order is set aside. The appeal is not allowed.

M/s. Chalet Hotel Pvt Ltd Vs. RPFC, Thane, ATA No.17(9) 2013 decided on 21.07.2014

You have to deduct PF from the salary you are paying to your staff/workers. There is no need to pay excess or deposit PF that is not actually due.

Thank you.

Any more views on this? This has been my confusion also for some time now with no specific answers, as I am getting two different views from the experts.

Best regards, GP

Minimum wages consist of Basic + DA in general or a lump sum amount fixed by the government. In such cases, the deduction of PF will be on the total amount.

If the actual Basic wages paid are below the minimum wage, then PF deduction will be on the minimum wages amount only, not on the lesser actual basic pay.

Gurumurthy, you are wrong. You did not read the explanation above. PF has to be deducted on wages payable, whether as per minimum wages or not.

Dear Kumar,

The PF amount should be deducted based on the actual basic salary paid. There are many companies where the minimum wage rule isn't followed by management. However, the management does not have the right to deduct extra PF.