Supreme Court Ruling on Allowances: How Should Employers Adapt to Stay Compliant?

Supreme Court Judgment on Special and Other Allowances

The Supreme Court recently issued a significant judgment regarding special and other allowances.

This ruling will have far-reaching implications for companies and their employees.

Employers must carefully review their policies and practices to ensure compliance with the new legal standards.

It is essential to stay informed about these developments to avoid any potential legal issues.

After the Supreme Court judgment, how can we bifurcate the employee salary structure as per the rules? Please guide me.

Dear Mr. Madhu, I went through your blog. Good read. One more point to note is that in the case of employers who mention the employer's contribution in their CTC structure, if the employer now decides to restrict the employer's contribution to Rs. 15,000 wages, i.e., to Rs. 1,800 per month, then the employee's CTC will decrease. Therefore, they would need to compensate for the reduction in some other component, which would again attract PF contribution. There is a limit to how much an employer can increase the HRA as there are percentage restrictions according to the HRA Act.

We still need clarity on when to start implementing the change as per the Supreme Court ruling.

Regards

Impact of Supreme Court Judgment on Employee Contributions

In the case of employees whose contributing salary is already Rs. 15,000, any addition to the special allowance will not make any difference. For example, if your total salary is Rs. 150,000 and your basic pay, on which PF is deducted, is Rs. 50,000, then Rs. 6,000 is your employer's contribution included in the CTC, i.e., Rs. 156,000 per month. Now, if the employer reduces it to 12% of Rs. 15,000, the share will be Rs. 1,800. Since the CTC of Rs. 156,000 is already agreed upon with you, the difference of Rs. 4,200 will be paid to you by the employer. This can be paid under any head because it will not attract PF since the PF is contributed on Rs. 15,000.

It is not necessary that the employer can only contribute on Rs. 15,000; he can contribute on any amount, and for that, there is no limit, in fact.

Good read...

I have a query. If an employee's gross is 19000 per month and the salary break-up is as given below:

Basic - 10000
HRA - 3000 (30% of Basic)
All Allowances - 6000

How can we restructure or deposit the PF contribution for the above case in the current scenario?

Regards,
Ramandeep Singh

Thank you, Mr. Madhu. Could you confirm whether it is advisable to start implementing the change now or if we should still wait for the implementation?

Is it mandatory to pay on Rs 15k, if basic is 70% of the total package and the balance is in allowances? For example, if someone is getting 20k, out of this 14k is basic and the balance of 6k is in allowances.

Thank you, Mr. Madhu. I was inquiring with some PF Inspectors about the internal guidelines given to them. They said that there is no guideline yet from the Central Board of Trustees as they are expecting a formal notification to come in. Regards.

Dear MT52,

The EPFO has already issued a circular in this respect. Please see the attached document.

Thank you.

Circular on PF Compliance and Enforcement

This is a circular issued to the Regional Offices directing the Assistant PF Commissioners to dispose of the cases pending under section 7A of the Act and to initiate and strengthen the activities of the field Enforcement Officers to identify those paying PF without considering the actual meaning of basic wages.

Now, in respect of establishments against whom action to determine omission has been initiated, a final order will be issued to pay the difference. Additionally, notices under sections 14B and 7Q will be sent for the recovery of damages and interest.

In respect of other establishments against whom no action has been initiated so far, a notice under section 7A will be served, and an assessment of PF dues on the omitted part of wages will be conducted. If you wait until such notice comes, you will have to pay more interest and damages. However, if you start calculating the PF dues based on the interpretation of the law by the Supreme Court, you can avoid the payment of interests and damages.

Dear Sir,

If Basic + Allowances = 18000, then how much amount should we deduct for PF? Is it on 15000 Rs. or on 18000 Rs.? Please confirm this for us.

You can deduct PF on Rs 15,000, though it is certainly open to the employer or employee to decide on the PF qualifying salary when it exceeds Rs 15,000.