Are Employers Allowed to Maximize Allowances to Minimize PF and Other Liabilities?

Dear All,

PF contribution is 12% on Basic+DA. We pay a lot of allowances such as HRA, Medical, Attendance, Telephone, conveyance, etc., and while doing so, we ensure compliance with Minimum Wages. Is there any provision or law that binds an employer regarding the allowances not exceeding a percentage of the total salary? Otherwise, an employer might pay maximum allowances with a small Basic + DA to avoid liabilities under PF, BONUS, GRATUITY Acts, etc.

Regards,
Suresh

Yes, Suresh,

There is a law that 40% of the total CTC should be basic + merged DA.

Thanks and regards,
Jayendra Chaturvedi

Dear Jayendra,

It would be helpful if you could provide such ceilings with specific reference to Act/Rules.

Aside to Suresh: Lowering the basic may attract the attention of the PF inspector. It is not advised to go too low.

Regards,
Vishwanath

Dear Suresh,

There is no specific law regarding this matter; however, I understand that some inspecting staff are insisting that Basic + DA should account for 50% of the Gross salary. To my knowledge, only the PF authorities should clarify this.

Regards,
Srinivas

Dear Srinivas,

You're right. We have experienced difficulty in this respect. The inspection team has directed us to pay PF on other allowances since Basic is less than 50%. We are forced to change the structure.

Regards,
Vishwanath

Dear Vishwa/Suresh,

You cannot cross the lower ceiling limit (40% Basic) in any salary structure. It is a guideline, which is a parameter-based for PF proceedings.

Thanks and regards,
Jayendra Chaturvedi

Hi all,

As per the inspection conducted in our organization, the inspector informed me that if Basic+ DA is less than 6500/-, then it will attract special allowances such as food allowance, etc., as part of the wages. HRA and Conveyance are excluded.

Regards,
Anita

Dear All,

This query needs a specific answer. We all experience the same type of difficulty, and the PF department just directs its way. Neither the employee nor the employer benefits as per the Social Security guidelines, and money keeps lying with the department. Requesting seniors to guide.

Regards,
Suresh

Anita and Suresh,

You are right. I am told that there is a High Court order favoring the Department. Since I don't have a copy of the same, I don't wish to comment further. If anyone has more information, please share.

Regards,
Vishwanath