Is Your PF Deduction Based on Basic Pay or Employer's Suggestion? Seeking Clarity on Minimum Wage Splits

Dear seniors,

My question is, should PF be calculated on Basic? How do we ascertain Basic - whether it should be equal to the Minimum Wage as per the MW notification of the State, or can the employer split the Minimum Wage, allocating one part for Basic and the other for DA/other allowances, with PF deductions happening on the Basic part? I received a notification in May 2011, which was subsequently put on hold in December 2011. Please advise.

As the law of the land exists today, you can split the minimum wages fixed by the state government into different allowances and deduct PF contributions only on basic plus DA as determined by you. This is as per the Punjab High Court, but the matter is before the Supreme Court.

Yes, that is correct, but if a contractor can split the MW into two parts for the calculation of PF liability. Say, the MW is 6000. The contractor splits it into Basic 4000 + Other Allowances 2000. He is satisfying the MW criteria, but in the case of PF, the liability is calculated on 4000 x 12%. The contractor is taking advantage of the PF Act; nothing is mentioned.

Regards

What your contractor is doing is legally permissible. However, he should show Rs. 4000.00 as basic plus DA.

Thank you.