Understanding PF Deductions for Contract Labour: Basic + DA or Gross Salary?

Dear Team,

I would like to know the contract Labour PF salary for PF deduction. Whether we need to deduct only for Basic + DA or for the Gross salary. Please clarify and share the amendment or circular documents from the concerned authority.

Provident Fund Contribution Guidelines

According to the Employees' Provident Fund and Miscellaneous Provisions Act, 1952, known as the PF Act, the statute governing Provident Fund contributions, the PF contribution should be calculated as 12% of "basic wages" (plus DA, cash value of food concession, and retaining allowance, if any), subject to a maximum of Rs 15,000/- per month. If an employee earns basic wages (plus DA, cash value of food concession, and retaining allowance, if any) of more than Rs 15,000 per month, they can opt for a higher PF deduction (more than 12% of Rs 15,000) at the joint request of the employee and the employer.

All of the above is declared by the government in the Employees' Provident Fund and Miscellaneous Provisions Act, 1952, known as the PF Act.

Kindly go through the attachment to see if we deduct the PF only on Basic, it is part of "Splitting of the Minimum Wages," and it is not permissible. Kindly refer to one court case under section 7A.

It was also directed to review all such cases disposed of under section 7A of the Act where the determination of dues has taken place on wages lesser than Minimum Wages.

Regards

Please note that you need to deduct PF on Basic wages, DA, retaining allowances, any value of food concession, or tiffin allowance. If these form part of your Gross wages, you have to pay PF for it. If your basic and DA are much lower than other allowances in your Gross Wages, you may have an issue where you are purposely paying other allowances to reduce EPF contributions.

Components of Basic Wages in the PF Act

In the PF Act, what are the components of basic wages explained? According to the act, Basic Wage + DA + Food Concession (i.e., Meals/Food/Tiffin Allowances) + Retaining Allowance will be part and parcel of Basic Wages on which PF contributions will be deducted, either in permanent or contract employees' wages.

This is very clear. Besides, it is better to keep the basic wage at least 50% of the total wage as a rational method, but not below 50%. The other allowances can be at 50%. In such a case, no authority will normally question.

Yes, PF should be deducted on the basic wage + DA or minimum wages as announced by the state government.

Regards,
Rajendra