How Do You Calculate Construction Costs vs. Wages for a PF Audit? Need Your Advice

I need your input regarding the calculation of construction cost versus wages (Gross Salary) cost percentage. This information is required for the PF audit.

The auditor has mentioned that out of the total Purchase Order (PO), gross wages/salary should be 25%.

Kindly advise.

Guideline from the Apex Court on Invoice Bifurcation

So far, I can remember there is one guideline from the Apex court that in the absence of bifurcation of the invoice, 25% of the total invoice should be considered as labor cost in the case of Civil Construction. Accordingly, PF & ESIC compliance has to be done.

The auditor is correct.

Importance of Invoice Bifurcation

It is always better for any cost if the invoice is bifurcated into material cost, labor cost, and supervisory cost (Profit) to avoid any complications.

Regards, S K Bandyopadhyay

Scenario Analysis for PF Wages

What would be the scenario in the following cases?

Is 25% of Gross Salary considered as PF wages?

Gross Salary includes both daily wage workers and permanent employees. For permanent employees, the PF contribution is limited to the PF wage ceiling of Rs. 15,000, regardless of their higher basic salary. Apart from the PF members, there are also PF-exempt employees who are part of the project team, such as consultants.

Kindly suggest.

Regards,
Pradeep

PF Gross Wages Consideration

25% is the consolidated amount and should be considered as PF gross wages. The restriction on PF contribution may be up to 15k per month. There may also be excluded employees.

Regards, S K Bandyopadhyay

USD HR Solutions – To strive towards excellence with effort and integrity