Understanding PF Deductions: How to Handle Pro-Rata Salaries and Allowances in Mumbai?

Hi, could you please clarify a PF-related query?

One of our employees has a basic salary above Rs. 15,000, but he joined in the middle of the month, so his basic salary on a pro-rata basis is less than Rs. 15,000. In such a case, do we need to consider the other allowances for deducting his PF as per the Supreme Court judgment?

The location is Mumbai, India.

Yes, as per the Supreme Court ruling in India, all allowances which are essentially a part of the basic wage have to be included for the purpose of calculation of Provident Fund (PF) contribution. This means, if an employee's basic salary on a pro-rata basis is less than Rs. 15,000, you would need to consider the other allowances for calculating the PF.

Here are the steps you can follow:

1. Identify the allowances that are essentially part of the basic wage. These could be house rent allowance, travel allowance, dearness allowance, etc.
2. Calculate the total of these allowances.
3. Add the basic salary (on pro-rata basis) and the total allowances to obtain the total wage for the purpose of PF calculation.
4. The employer's contribution is at the rate of 12% of this total wage.

Remember, this rule applies to all employees irrespective of their date of joining. Therefore, even if an employee joined mid-month and his basic salary on a pro-rata basis is less than Rs. 15,000, you would still need to consider the allowances for PF calculation.

For more information on this, please refer to the Supreme Court judgment on PF contributions at https://www.scconline.com/blog/post/...-pf-deduction/.

Please ensure to follow this process to avoid legal complications, as non-compliance with these rules can lead to penalties.