Dear Colleague, Your question is: Is EPF deduction in leave bonus, conveyance, and laundry allowance mandatory? Can anyone provide an inclusive and exclusive list of allowances under EPF?
Understanding Leave Bonus and Allowances
Here, the real meaning of "Leave Bonus" needs to be examined from all legal perspectives. The nature of the payment for conveyance and laundry allowance should be reviewed in line with the landmark judgment detailed below. Kindly read the details below and, if possible, the full judgment, and then interpret how these components are really implemented in your establishment, which can only be done internally.
Supreme Court Judgment on Allowances
In the case of Regional Provident Fund Commissioner (II) West Bengal v. Vivekananda Vidyamandir, the Supreme Court opined on five different appeals arising from the High Courts of Calcutta, Madhya Pradesh, and Madras. The appeals concerned the same question of law—namely, whether the special allowances paid by an employer to its employees form part of their basic wages and are thus subject to PF contributions.
The Supreme Court reiterated the principle of universality set out in its previous judgments in Manipal Academy of Higher Education v. Provident Fund Commissioner and Bridge and Roof Co (India) Ltd v. Union of India. In these cases, the court had set out the following guidelines for establishing what constitutes basic wages:
1. Where a payment is universally, necessarily, and ordinarily paid to all employees across the board, it constitutes basic wages.
2. Where a payment is available only to those who avail of the opportunity, it does not constitute basic wages.
3. Where a payment is linked to a special incentive or extra work, it does not constitute basic wages.
Based on the above guidelines, the Supreme Court ruled that the special allowances in the case at hand, which formed part of the employees' basic wages, were subject to PF contributions on the basis that they:
- were not variable in nature;
- were not linked to an incentive to perform extra work; and
- were paid across the board to all employees in a particular category.