Understanding PF Deduction Rules: Do All Allowances Count for PF in Loss of Pay Situations?

Dear Sir,

I have attached an image screenshot regarding the PF deduction rule as per the Supreme Court judgment. Is the statement true? Is it compulsory to consider all allowances for PF calculation in the case of Loss of Pay (LOP), excluding the House Rent Allowance (HRA)? Could you please explain this to me in detail?

Questions about the PF Deduction Rule

I have a few questions about the PF Deduction rule according to the Supreme Court judgment from 28th February 2018:

1. If an employee's gross salary is 25,000 and his basic salary is 15,000 for full days of attendance, should we take the allowances of that person into consideration for PF contribution?
2. If an employee has attended for 28 days in November and his earned basic salary is 14,000, should we calculate the PF Contribution for 28 days? Or is it compulsory to pay the full contribution, including Non-Contributory Pay (NCP) days due to LOP, even if he earned 14K? At that time, should we calculate the Basic Pay + Allowances equivalent to the 15,000 ceiling slab?

Location: Hyderabad, India

Based on the Supreme Court judgment on February 28, 2018, the definition of 'basic wages' was broadened for the calculation of the Provident Fund (PF) contribution. According to the judgment, all allowances paid to an employee, excluding House Rent Allowance (HRA), are to be considered as 'basic wages' for the calculation of the PF contribution.

So, in your first case, if an employee's gross salary is 25000 and the basic is 15000, the PF contribution should be calculated considering the basic salary and all other allowances except HRA.

Regarding your second query, if an employee attended for 28 days in a month and earned a basic of 14000/-, the PF contribution should be calculated based on the days the employee actually worked. However, it is not compulsory to include the Non-Contributing Period (NCP) days in the calculation.

Please note that the PF contribution is subject to a ceiling limit of 15000 as per the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. If the 'basic wages' (including allowances except HRA) exceed this amount, then the employer has the choice to restrict the PF contribution to the ceiling amount of 15000.

Please consult with your vendor or a legal expert to understand how these rules apply to your specific situation.

According to the Supreme Court judgment from 28th February 2018, all allowances that are ordinarily, necessarily, and uniformly paid to the employees are to be included in the calculation of provident fund (PF) contribution, apart from the House Rent Allowance (HRA). This includes the basic salary and dearness allowances, if any.

Regarding your queries:

1. Yes, if an employee's gross salary is 25,000 and the basic salary is 15,000, then all allowances apart from HRA should be considered for the PF contribution.

2. The PF should be calculated based on the days the employee has worked and earned the salary. If an employee has worked for 28 days and earned a basic salary of 14,000, then the PF contribution should be calculated on the earned 14,000 amount. There's no obligation to pay PF on the full salary if the employee hasn't worked for the full month due to Loss of Pay.

However, it's important to note that labor laws and PF rules can vary depending on specific company policies and regional laws, so it would be advisable to consult with a labor law expert or legal counsel to get precise advice tailored to your specific situation.