I have a query regarding PF contributions: do special allowances count when calculating PF? Please clarify if PF is calculated based on Basic + DA + SA or only on Basic + DA.
I understand that PF contribution is mandatory on Basic + DA + SA. However, it is not mandatory if the basic salary exceeds 6500.
Our organization has decided to make PF contributions non-mandatory for all staff with a basic salary exceeding 6500 starting this fiscal year. If we have already deducted PF from staff whose basic was more than 6500, and management now wishes to make PF contributions optional, can we stop the deductions mid-year without raising concerns from the PF department regarding sudden stops in contributions?
I would appreciate input from HR and compliance professionals on PF calculation.
Thank you.
From India, Mumbai
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2I understand that PF contribution is mandatory on Basic + DA + SA. However, it is not mandatory if the basic salary exceeds 6500.
Our organization has decided to make PF contributions non-mandatory for all staff with a basic salary exceeding 6500 starting this fiscal year. If we have already deducted PF from staff whose basic was more than 6500, and management now wishes to make PF contributions optional, can we stop the deductions mid-year without raising concerns from the PF department regarding sudden stops in contributions?
I would appreciate input from HR and compliance professionals on PF calculation.
Thank you.
From India, Mumbai
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Special Allowance and PF Contribution
Special allowance paid to all employees in general as a component of salary will be treated as part of statutory salary for the purpose of PF contribution. However, if it is paid to a particular employee or a particular category of employees, considering the special skill required to perform the job, it will be treated as a special allowance.
The Madras High Court in R Ramanathan Chettiar Jewellers, Madurai vs. Regional PF Commissioner, Madurai – 1988 (ii) LLJ 045, has pointed out that a payment which is not of a regular nature and is paid purely at the discretion of the management would not be available for PF contribution. In Associated Cement Company Ltd. and Ors. v. R.M. Gandhi, Regional Provident Fund Commissioner, Gujarat (1995-III-LLJ(Suppl.)-368), it has been held that ad hoc payments made to 'eligible employees and not to all employees' under agreement do not form part of basic wages for PF contribution.
Though it is optional for an employee whose salary (PF qualifying salary) at the time of joining the establishment exceeds Rs 6500 to become a member, an employee once covered should continue his membership as long as he is in employment. Therefore, if you have given coverage to those whose salary exceeded Rs 6500, you should continue the coverage and cannot stop it even if the employees give their consent to stop it. Certainly, the employer can restrict his contribution to 12% of Rs 6500 even at a later stage. The employer who has been contributing on the total salary of an employee which was higher than Rs 6500 can restrict it to Rs 6500 at a later stage, as decided by the Apex Court in Marathwada Gramin Bank Karmachari Sangahatana and another Vs Management of Marathwada Gramin Bank and others (SC 2011 LLR 1130).
Regards,
Madhu.T.K
From India, Kannur
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Special allowance paid to all employees in general as a component of salary will be treated as part of statutory salary for the purpose of PF contribution. However, if it is paid to a particular employee or a particular category of employees, considering the special skill required to perform the job, it will be treated as a special allowance.
The Madras High Court in R Ramanathan Chettiar Jewellers, Madurai vs. Regional PF Commissioner, Madurai – 1988 (ii) LLJ 045, has pointed out that a payment which is not of a regular nature and is paid purely at the discretion of the management would not be available for PF contribution. In Associated Cement Company Ltd. and Ors. v. R.M. Gandhi, Regional Provident Fund Commissioner, Gujarat (1995-III-LLJ(Suppl.)-368), it has been held that ad hoc payments made to 'eligible employees and not to all employees' under agreement do not form part of basic wages for PF contribution.
Though it is optional for an employee whose salary (PF qualifying salary) at the time of joining the establishment exceeds Rs 6500 to become a member, an employee once covered should continue his membership as long as he is in employment. Therefore, if you have given coverage to those whose salary exceeded Rs 6500, you should continue the coverage and cannot stop it even if the employees give their consent to stop it. Certainly, the employer can restrict his contribution to 12% of Rs 6500 even at a later stage. The employer who has been contributing on the total salary of an employee which was higher than Rs 6500 can restrict it to Rs 6500 at a later stage, as decided by the Apex Court in Marathwada Gramin Bank Karmachari Sangahatana and another Vs Management of Marathwada Gramin Bank and others (SC 2011 LLR 1130).
Regards,
Madhu.T.K
From India, Kannur
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No need to add a special allowance for PF contribution. If the minimum wage is Rs. 6500, we should include components like CCA, Conveyance, and other allowances. If the total of Basic + DA reaches Rs. 6500, we do not need to include any other allowances.
From India, Madras
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From India, Madras
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Dear, PFA the 1 case study & 1 scan copy from PF book which will help you understand the impact. Regards, Zameer Ansari.
From India, Mumbai
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From India, Mumbai
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The case you have highlighted is a Madras High Court case. Apparently, the query raised by Shri. Milind Kamble seems to be from Mumbai, Maharashtra. In Maharashtra, the special allowance denotes the Cost of Living Allowance, i.e., dearness allowance. It is suggested to change the nomenclature of Special Allowance to something else, such as City Compensation Allowance or any other allowance.
Thanks and regards,
Keshav Korgaonkar
http://www.shantadurgaent.com - Insurance Advisors, Corporate Advisors, Legal Advice, Wage and Salary, Labour Compliance Audit, SSI Registration, NOC from
From India, Mumbai
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Thanks and regards,
Keshav Korgaonkar
http://www.shantadurgaent.com - Insurance Advisors, Corporate Advisors, Legal Advice, Wage and Salary, Labour Compliance Audit, SSI Registration, NOC from
From India, Mumbai
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PF Notification on special allowance.pdf