Can We Split Minimum Wages for PF Contributions, or Must It Be Basic Pay?

Is it possible to bifurcate the minimum wages to pay the PF contribution, or do we have to take the minimum wage as basic pay when calculating PF?

You cannot bifurcate minimum wages. Please provide details of your proposed bifurcation along with the minimum wages notification. Also, inform about the impact of the bifurcation of minimum wages on PF contribution.

Minimum wages are already minimal. If you split them, what will be the savings? There is a proverb in Marathi: "Don't carve your teeth to fill your stomach." Don't deprive poor individuals of the minimum social security amount!

PF contribution should be deducted and paid on minimum wages in full.

Dear Friend,

The answer to your posting is "NO". Try to understand the "Rate of Wages" declared under minimum wages is only the basic, which cannot be broken into pieces.

Dear Prabhat, Aniket, Shrikant, Shrinath,

Your contention on the splitting of Minimum Wages is different from the decision made by the Supreme Court in the Airfreight Case. I would like to hear your views on the case that was decided by the Apex Court.

Yes, rightly said. Airfreight and Bridge & Bridge case are quite clear on this contention. On a legal basis, wages defined under the EPF Act differ from the Minimum Wages Act.

R K Singh Sr. General Manager (HR & Admin) Sel Manufacturing Co Ltd.

Supreme Court Judgement on Minimum Wages

Please find attached a copy of the Supreme Court Judgement in the Airfreight Ltd case, wherein the Hon'ble SC has ruled that Minimum Wages (MW) must be in accordance with Section 2 (h) of the Minimum Wages Act 1948. It is noted that as per Section 2 (h) of the Act, House Rent Allowance (HRA) is considered a part of MW (refer to the attached copy). Therefore, the MW should include Basic, Dearness Allowance (DA) as notified by the Government, and HRA (up to 40% of the MW).

PF Contributions and Minimum Wages

The PF Appellate Tribunal has also determined that MW can be divided for PF contributions, similar to the decision of the Kerala High Court (copies of relevant documents attached). It is suggested that we split the MW and make PF contributions accordingly until the final judgement of the Hon'ble Supreme Court.

Regards,
N. Nataraajhan
Sakthi Management Services
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[Email Removed For Privacy Reasons]

Is it possible to bifurcate the minimum wages to pay the PF contribution?

Minimum wages comprise Basic + DA/VDA. Consequently, PF contribution is payable on Basic + DA/VDA. Minimum wages are notified by the appropriate government. The vital question here is, "Does the employer have the right to alter minimum wages and split them into other allowances to subterfuge EPF contribution?"

Objective of the Minimum Wages Act

Further, what is the objective of the enactment of the Minimum Wages Act? It is to ensure bare minimum wages, EPF, bonus, and gratuity. The Bonus Act was recently amended by inserting "Bonus payable on Rs 7,000/- or applicable minimum wages, whichever is higher."

We all have a social responsibility apart from educating forum members. Keeping that in view, I still hold that we cannot suggest splitting minimum wages for the purpose of reducing EPF contribution, which is the only retirement fund for private security employees.

I agree with both the seniors, but I want to ask, what if the HRA Act is applicable separately to the state? Then there is no question of considering HRA in minimum wages. Also, PF should be deducted on Basic + DA. However, in some cases, I have seen that employers are bifurcating the Basic to lessen the PF liability, even though they are paying well above the minimum wages. They do this under the head of washing allowance, heat allowance, or canteen allowance. This practice surely reduces the PF liability on them. When asked about the legality of this practice, they mention that they have the approval letter from the local Labour Commissioner.

For example, if the Basic minimum wage is 7000, then 5000 as basic & 2000 as allowances. Can this be done?

"They have the approval letter of the local Labour Commissioner. The Labour Commissioner is not the Competent Authority as per the Minimum Wages Act. Can you please upload the quoted document for understanding?"