Understanding EPF Payment: Should It Be Based on Full or Partial Minimum Wages?

Dear Sir,

Will you please clarify my doubt regarding the EPF payment? Should it be based on the minimum wages or on a portion of the minimum wages such as (Basic+DA)? I am expecting to receive the experts' clarifications on this as soon as possible.

Phani Kumar

It has been clarified that EPF contribution has to be reckoned on full Basic Pay + DA as notified and it cannot be a part of the notified rate.

KK, sir. Thanks for the reply and for contract labor. Can we split the salary (just higher than Minimum Wages) as (Basic + DA) + others? What is the meaning of MW to be followed? Either the full salary equal to MW or (Basic + DA) equal to MW? Very confusing.

It is clarified that the EPF contribution is based on the basic salary + DA, not on minimum wages.

Minimum Wages and EPF Contribution

The minimum wages for various trades are notified by the respective state governments from time to time and have two components: basic pay and DA. You have the freedom to adjust the amount into basic pay, DA, and other allowances as long as the notified total minimum wage is paid. As stated, you are paying more, so there is no problem in this regard.

PF is deductible on Basic Pay and DA. There has been widespread malpractice of keeping basic pay and DA at ridiculously low levels and showing the maximum salary in allowances, not attracting PF contribution. Looking at this position, it has been clarified by EPFO that the PF coverage has to be there for the notified minimum wages.

Dear Member,

The contribution to EPF should be made as per the provisions of wages as defined under the EPF Act. There is no compulsion to contribute more than the wage cap limit (Rs. 15,000/-).

The concept of Minimum Wages

The concept of Minimum Wages is entirely different and comprises two main components: Basic and DA. Industries that pay more than the minimum wages shall have certain allowances for administrative convenience. If the split is intended for subterfuge or with a malicious intention to reduce statutory liability, it should be questioned, and it attracts contribution. Otherwise, the EPF authority has no right to request the employer to contribute based on minimum wages.

Pending legal cases

However, there are numerous cases pending before the HC and SC to determine the exact definition of "Basic Wages" qualifying for EPF Contribution.

You cannot split the minimum wages as (Basic+DA) rather than consider the rate as Basic. Further, the EPF attracts to wages component shown as Basic, DA, 75% HRA, and if other allowances payable to the workman. Upon the split of minimum wages, it attracts penal damage and interest by the authority. You can, at best, follow the limit without contributing above the limit.