Confused About EPF Wages? Let's Discuss What Really Counts as EPF Wages

The Employees' Provident Funds and Miscellaneous Provisions Act, 1952

Sec 2. Definitions.—In this Act, unless the context otherwise requires,—

[(a) "appropriate Government" means— 1. This Act has been extended to Dadra and Nagar Haveli by Reg. 6 of 1963, s. 2 and the First Schedule: Pondicherry by Reg. 7 of 1963, s. 3 and the First Schedule and Goa, Daman and Diu by Reg. 11 of 1963, s. 3 and Schedule (1-7-1964). 2. Subs. by Act 99 of 1976, s. 16, for "and family pension fund" (w.e.f. 1-8-1976). 3. Subs. by Act 25 of 1996, s. 2, for "family pension fund" (w.e.f. 16-11-1995). 4. Subs. by Act 99 of 1976, s. 17, for sub-section (1) (w.e.f. 1-8-1976). 5. The Words "except the State of Jammu and Kashmir" omitted by Act 34 of 2019, s. 95 and the Fifth Schedule (w.e.f. 31-10-2019) and extended to the Union territory of Jammu and Kashmir and Union territory of Ladakh by notification No. S.O. 3962(E), Part II-section 3-Sub-section (ii) dated 31-10-20 (w.e.f. 1-1-2020). 6. Subs. by Act 94 of 1956, s. 2, for sub-section (3). 7. Subs. by Act 46 of 1960, s. 2, for "fifty" (w.e.f. 31-12-1960). 8. Subs. by Act 33 of 1988, s. 2, for sub-section (4) (w.e.f. 1-8-1988). 9. Ins. by Act 46 of 1960, s. 2 (w.e.f. 31-12-1960). 10. The proviso omitted by Act 16 of 1971, s. 13 (w.e.f. 23-4-1971). 11. Subs. by Act 22 of 1958, s. 2, for clause (a). 4 (i) in relation to an establishment belonging to, or under the control of, the Central Government or in relation to an establishment connected with a railway company, a major port, a mine or an oilfield or a controlled industry, 1 [or in relation to an establishment having departments or branches in more than one State,] the Central Government; and (ii) in relation to any other establishment, the State Government;] 2 [(aa) "authorised officer" means the Central Provident Fund Commissioner, Additional Central Provident Fund Commissioner, Deputy Provident Fund Commissioner, Regional Provident Fund Commissioner or such other officer as may be authorised by the Central Government, by notification in the Official Gazette.

(b) "basic wages" means all emoluments which are earned by an employee while on duty or 3 [on leave or on holidays with wages in either case] in accordance with the terms of the contract of employment and which are paid or payable in cash to him, but does not include— (i) the cash value of any food concession; (ii) any dearness allowance (that is to say, all cash payments by whatever name called paid to an employee on account of a rise in the cost of living), house-rent allowance, overtime allowance, bonus commission or any other similar allowance payable to the employee in respect of his employment or of work done in such employment; (iii) any presents made by the employer; (c) "contribution" means a contribution payable in respect of a member under a Scheme 4 [or the contribution payable in respect of an employee to whom the Insurance Scheme applies];

Since 1952, employers, employees, unions, consultants, and professionals have been struggling with this definition, on which we should pay contribution to EPF. There is no clarity about what is to be called EPF wages. It's very surprising. Your opinion, please.

Regards, Nitin S Parab

You are not right; there were no confusions regarding the definition of basic wages when the Act was passed. All the confusions started only when the new generation HR Managers and HR Consultants began bifurcating the total salary into compartments like basic wages, HRA, Conveyance, Special allowance, etc., and putting the least amount into basic wages based on the interpretation of section 6, which states that "contribution is payable on 'basic wages' and dearness allowance only." However, they failed to understand that the term basic wage should include all emoluments that an employee receives as per the terms of the agreement.

Various courts have also intervened, and ultimately, the Apex Court came to the interpretation that PF is to be contributed on the total salary. The only component that can be excluded is HRA. This does not mean that you can have the maximum amount as HRA and the minimum amount as Basic, DA, Special allowance, etc., to be excluded from the scope of PF qualifying wages. The HRA should be a compensatory allowance, paid to those residing in leased accommodation and not to those living in their own or their spouses' houses.

In many organizations, HRA is paid even to those residing in their own houses, without considering whether their spouses receive it or not.

Therefore, it is not the Act that is incorrect, but the persons whose interpretation of the Act is incorrect. Referring to the landmark judgment of the Supreme Court in Bridge & Roof Co. (India) Ltd vs Union Of India, it is stated that "all allowances paid universally to all employees are part of basic wages."

Employers tend to allocate the remaining amount, after basic wages, HRA, conveyance, etc., to a component called "special allowance." The Courts have ruled that if the special allowance is paid only to certain employees based on particular skills they contribute to their work, then that alone shall be excluded from the scope of PF qualifying wages. However, if it is universally paid to all employees, it is part of wages.

Analyzing establishments that have been paying PF on actuals, leading to higher employee benefits, reveals that such companies typically have trade unions and a robust Personnel Department managing employee benefits. On the other hand, companies viewing EPF, etc., as a statutory burden that only adds to costs tend to offer remuneration as Cost To Company (CTC). These companies often misinterpret the Act and limit their contributions to the minimum required.

There is no confusion regarding the definition of wages; however, these issues have arisen because HR professionals are conducting extensive experiments to meet employer demands, often at the expense of employee benefits!

After the Apex court verdict, it is now crystal clear to understand what constitutes PF Gross. It is the monthly gross minus HRA, any payment related to production/productivity, or any special payment to specific groups of employees but not across the board. Any payment included in the monthly gross paid across the board should be considered as PF Gross.

Regards, S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions [Phone Number Removed For Privacy-Reasons] [Email Removed For Privacy Reasons]