Understanding PF Deductions on Special Allowance: How Do We Adjust CTC?

Dear Team,

Can anyone please explain to me what the deduction of PF on special allowance is? Also, how should we adjust the special allowance while breaking down the CTC?

Regards,
Nandini

Hi Prashanth,

Okay, I agree with you, but please tell me:

1. If employees earn less than the minimum wage, will it be against government rules?
2. In my company, they are maintaining two separate registers; who will fall under the minimum wage category and who will not?
3. Can we deduct PF and ESI if they fall under the minimum wage category?
4. Is there any PF rule where employees have the option to opt for PF?

Please provide answers to all four questions.

Regards,
Nandini

PF has to be paid on Basic + DA. Some states are notifying DA as Special allowance - in which case PF has to be paid on Special allowance. However, PF contribution has nothing to do with minimum wages because of the ruling by the EPF Appellate Tribunal and inclusion of HRA in the definition of "wages" under Sec 2 (h) of the Minimum Wages Act 1948.

Regards,

N. Nataraajhan
Sakthi Management Services
Hp: +91 94835 17402
E-mail: natraj@sakthimanagement.com

Please clarify, do minimum wages consider monthly gross (basic, DA, Conveyance, HRA, SPL) or only basic and DA.

Dear Nataraj,

In my company, the Chartered Accountant (CA) is stating that the minimum wage includes all components of remuneration that we provide, such as basic salary, Dearness Allowance (DA), House Rent Allowance (HRA), Conveyance, and Special Allowance. Is this information accurate?

Regards,
Nandini

Ms. Nandini,

It is true that the PF Appellate Tribunal and Kerala HC have held that MW wages could be split. However, considering the inclusion of HRA in the definition of wages under Sec 2 (h) of the Minimum Wages Act and the Honorable Supreme Court ruling in the Airfreight case, it is advisable to have MW comprising Basic, DA, and HRA until the final verdict by the Supreme Court.

Regards,
N. Nataraajhan
Sakthi Management Services