Understanding EPF: Which Salary Components Aren't Covered?

What are the components that are not covered by the EPF?

All components specified by amounts shall qualify for EPF. Though house rent is not part of the PF qualifying salary, if it is paid universally to all employees, irrespective of whether they reside in their own houses or rented houses, it shall be taken as part of the salary and not as an allowance excluded from the PF. Incentives, commissions, etc., expressed in percentages and not in certain amounts shall, obviously, be outside the purview of PF.

If the total salary exceeds Rs. 15,000 (as per present law), the amount that exceeds Rs. 15,000 may also be treated as salary that will not qualify for PF.

Mr. Madhu, I think the judgment said all allowances are to be considered except House Rent Allowance (HRA), and no exemption or condition was set for HRA. For other allowances, a condition was provided that they may be exempted if not paid to all on a standard pattern, etc. At least, that is my understanding of the judgment. Are you suggesting that even HRA can be included in the same manner?

My personal observations of the issue are as follows:

1. The origin of the case was from the definition of Basic wages as per the present PF & Misc. Act. All the organizations all over India were paying contributions of PF on Basic & DA only, though in the definition of Basic wages, it is mentioned that it includes all remuneration with the exclusion of HRA, DA, etc. As per Sec-6 of the PF act, contributions are to be paid on Basic, DA & RA.

2. As per the Apex court verdict, all organizations have been paying contributions on (Monthly gross - HRA).

3. In my opinion, as the Apex court has not rejected or amended the definition of Basic Wages, therefore, as per the exclusion list of the definition, HRA is not being considered.

4. Moreover, in the new labor codes, PF contributions will be on wages (Basic & DA) only.

5. I hope all Indian organizations will pay PF contributions and Gratuity payments on Basic & DA only even after the implementation of labor codes also.

Regards, S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions [Phone Number Removed For Privacy-Reasons] [Email Removed For Privacy Reasons] USD HR Solutions – To Strive towards excellence with effort and integrity

Mr. Bandyopadhyay, I agree with you. The SC did not change the definition; it clarified what was meant by 'All other Allowances'. Therefore, the exclusion of HRA stands.

New Labour Codes and Basic Definition
With reference to the new Labour Codes, the definition of Basic has changed. The practice of setting basic pay at 10% or 15% of the total gross is now not allowed, which is where the entire problem for the SC judgment started. The manipulation was not in line with the intent of the legislation. I think after the Labour Code is put into effect, the definition will be adopted.

Definition of Wages under EPF & MP Act

The definition of wages under the existing EPF & MP Act is very clear. It defines basic wages as total remuneration as per agreement. It excludes HRA and DA.

Contribution Payable

Now, coming to the contribution payable, the Act says that it is payable on the basic wages and DA. HRA is part of the salary for all private establishments. It is not paid separately but comes along with the salary. When an employer pays house rent allowance as an allowance, he pays it either as a reimbursement or by means of a payment directly to the landlord. It is not paid to an employee who resides in their own house. It is paid only to such employees with whom a commitment exists as per the contract of agreement. When such payment is made, no deduction is made pro rata if during that month the employee had remained on leave without pay. But in general, HRA is proportionately deducted when an employee takes leave without pay.

Moreover, as per the Roofs and Bridges case, an allowance paid universally to all employees should be part of basic wages.