EPF Employer & Employee Contribution Calculation

Sir/Madam, I request you to clarify the doubts related to EPF calculation. One of the companies is calculating and deducting the employee's contribution of PF amount as follows:

Basic + DA + Special Allowance + Children Education Allowance = 4500 + 9400 + 500 + 200 = 14600 * 12% = 1752.

Is it correct? Kindly clarify.

As per the Supreme Court ruling pronounced on 28 February 2019, in general terms, all allowances in question are to be treated as wages for the purpose of provident fund (PF). Kindly read the very informative article on this subject. The given interpretation is correct according to the ruling if the components arise from the contract of employment and the allowances shown are to be considered as Basic Wages. Hence, it appears to be accurate.

https://www.moneycontrol.com/news/bu...s-3667041.html

Thank you so much for your valuable suggestion. It is really helpful to me. In that salary slip, HAR amount Rs. 5116, Washing Allowance Rs. 225, Night Duty Allowance Rs. 600, and RH Amount Rs. 641 were also given, but they have only considered and included Children Education Allowance & Special Allowance for calculation.

As per the PF Act provision, Basic + DA + Retaining allowances should have been considered. However, they have only taken into account the above-mentioned emoluments. That is why I am confused. Kindly clarify.

Regards

Dear Colleague,

PF is to be deducted from Basic + DA + Retaining Allowance and for 15k. If there are other allowances included, then for arriving at 15k, depending on the allowance and its nature, it will form part of Basic as per the judgment in 2019. The Hon'ble SC has once again relied on the principles of 'universality' and 'contingency' as laid down in earlier judgments and pronounced the following principles to test the applicability of PF to different allowances (by whatever name called):

- Whether an allowance is linked to any greater output from the employee/linked to an incentive;
- Whether an allowance is by nature, variable;
- Whether an allowance is paid only to those who avail the opportunity;
- Whether an allowance is being paid across the board to all employees in a particular category.

Hence, your components are subject to these evaluations. Kindly read the article given in the link in the earlier reply so that you will get full clarity.

Definition of Basic Wages

It is the definition of basic wages that is confusing for many employers. Basic wages mean the total wages as per the agreement, and it should include all allowances that are payable universally to all employees. If you have a special allowance paid to a particular category of employees based on their special skills, that can be excluded from wages. Similarly, if you have a house rent allowance given to some employees who are asked to stay near the office for business purposes, that can also be excluded. All other allowances would qualify for PF deduction. Obviously, the PF authorities cannot demand a contribution on amounts above Rs 15,000.