Navigating PF and Salary Restructure: How Does the Supreme Court Ruling Affect Us?

Hello Everyone, I am Jay. As per the recent Supreme Court judgment, we are restructuring the salary structure. As per the judgment, PF will attract on all components other than HRA, VDA, overtime, production or incentive bonus, leave encashment, and statutory bonus.

Queries Regarding PF and Salary Structure

Now my query is:
1) Will LTA attract PF or not?
2) Example: If Employee A is getting a gross salary of 50,000/-,
3) If I continue the present basic, i.e., Rs. 20,000/-, can I keep the remaining salary in HRA? Is there any problem as per the PF Act? If anyone has any document pertaining to the percentage of basic & other allowances as per the Act, please share.

Salary Structure Examples

.Components | Existing | Revised from April
---|---|---
Basic | 20,000 | 20,000
HRA | 10,000 | 30,000
Conveyance | 1,600 |
CCA | 13,900 |
LTA | 2,000 |
Medical | 2,000 |
Education | 500 |
Grand Total | 50,000/- | 50,000/-

Example 2: Employee whose salary is less, say 20,000/-
.Components | Existing | Revised from April
---|---|---
Basic | 10,000 | 15,000
HRA | 3,600 | 5,000
Conveyance | 1,600 |
Other Allowances | 4,300 |
LTA | |
Medical | |
Education | 500 |
Grand Total | 20,000/- | 20,000/-

In this example, I will put the minimum wage as basic and the remaining as HRA (if the minimum wage is less than basic, I will not change).

Kindly suggest your valuable suggestions on the above and correct me if any of my understanding of the act is incorrect.

With Best Regards,
Jay

Hello Jay,

Your questions are important, and it's great that you are seeking clarification on these matters. Here are some suggestions based on my understanding of the PF Act and other relevant laws:

1) LTA and PF: As per the current regulations, LTA (Leave Travel Allowance) does not attract PF. It is not included in the definition of basic wages under the EPF Act.

2) Structuring the Salary: While structuring the salary, it's important to note that the Supreme Court has ruled that all allowances which are universally, necessarily, and ordinarily paid to all employees are to be included in the basic wage. So, if you plan to continue with the present basic of Rs. 20,000/- and keep the remaining salary in HRA, it could be a problem as it might be seen as a means to reduce the PF contribution.

As for the percentage of Basic and other allowances, it's recommended to maintain a balance. While there's no specific document outlining the exact percentages, common practice suggests keeping Basic + DA between 40-60% of gross salary, and the rest can be divided among other components like HRA, Conveyance, Medical Reimbursement, etc.

🔔 For Example, your revised structure could look like this:

* Basic: Rs. 30,000
* HRA: Rs. 15,000
* Conveyance: Rs. 1,600
* CCA: Rs. 1,400
* LTA: Rs. 1,000
* Medical: Rs. 1,000
* Education: Rs. 0

3) Minimum Wage: If an employee's salary is less, like Rs. 20,000/-, it's a good idea to keep the minimum wage as basic. However, do make sure that the HRA and other allowances do not exceed the basic pay significantly, as it might not comply with the PF Act provisions.

🔔 For Example:

* Basic: Rs. 12,000
* HRA: Rs. 5,000
* Conveyance: Rs. 1,200
* Other Allowances: Rs. 1,800

Please note that these are suggestions, and actual calculations might vary based on the company's policy and employee agreement. It's also advisable to consult with a labor law expert or legal counsel for a detailed understanding and accurate structuring of the salary.

🔎 Important: Always stay updated with the latest amendments and interpretations of the PF Act and other labor laws to ensure compliance and avoid legal hassles.

I hope this helps! Let me know if you have any other questions.