Dear All,
Please find an article published in today's TOI on "Save more in provident fund, but take home less as salary" by Lubna Kably, for your information and discussions, as given below:
MUMBAI: A recent circular issued by the Employees Provident Fund Organisation, which comes under the Ministry of Labour and Employment, will reduce the take-home pay of salaried employees. According to this circular, various allowances paid to employees will have to be added back to the basic salary, and provident fund contributions computed against this higher value. This, in turn, will result in a lower take-home pay.
The circular, dated November 30, 2012, was issued after internal review meetings held in late November and has been forwarded to Employee Provident Fund offices across India.
Historically, most companies have been computing provident fund (PF) contributions (at 12% each by the employer and employee) against basic salary and dearness allowance only. However, the definition of basic wages has been a contentious issue, with PF authorities claiming that companies split the basic wages into various allowances to reduce the quantum of PF contributions.
The circular addresses this "splitting up" practice adopted by employers. It states that basic wages will include all allowances that are "ordinarily, necessarily, and uniformly" paid to employees. Thus, various allowances such as conveyance, educational allowance, medical allowance, etc., will have to be taken into consideration while computing the PF contribution.
Last year, the Madras High Court and the Madhya Pradesh High Court, in two separate cases, held that various allowances paid by the employer to its employees under different heads, such as conveyance, education, food concession, medical, special holidays, night shift incentives, city compensatory allowance, etc., qualify as basic wages under section 2(b) of the PF Act and need to be included while computing the PF contribution.
Based on these judgments, PF officials conducted audits on India Inc. and raised demands to recover the differential PF contributions. Subsequently, pending dismissal of the writ petitions filed by these companies, the audits were held in abeyance.
"Following this circular, the PF officials may once again commence audits of Indian companies to ascertain whether the PF contribution has been rightly computed and deposited," says Yatin Pathak, a chartered accountant.
Sonu Iyer, a partner at Ernst and Young, points out a possible shelter that could be available for employees in India. The Proviso to paragraph 26A of the PF Scheme allows PF contributions by the employee as well as the employers on a maximum notional level of Rs. 6,500 per month, instead of the entire salary (including various allowances). The rate remains the same at 12% each for the employer and employee contributions, respectively.
"Not many employers have opted for this route, as PF is part of the employee's cost to the company and it also provides a tax shield to the employees. Now, if the employer organization suddenly wishes to exercise this option and compute PF contributions only against Rs. 6,500 per month, it is not clear whether the PF authorities will oblige," Iyer explains.
Expatriate workers from India also have to contribute to PF, even if their salary is paid outside India (unless they have an exemption owing to a social security arrangement with the country to which they have been deputed). Unfortunately, for them, this notional limit of Rs. 6,500 doesn't apply. "If an employer has expat workers, there is a higher likelihood of them being subject to scrutiny by PF authorities," adds Iyer.
A similar matter is up for interpretation before the Supreme Court, but until then, PF authorities are likely to commence audits and raise demands on India Inc, based on the circular.
I invite discussion on this topic.
Thanks and regards.
Keshav Korgaonkar
From India, Mumbai
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2584Please find an article published in today's TOI on "Save more in provident fund, but take home less as salary" by Lubna Kably, for your information and discussions, as given below:
MUMBAI: A recent circular issued by the Employees Provident Fund Organisation, which comes under the Ministry of Labour and Employment, will reduce the take-home pay of salaried employees. According to this circular, various allowances paid to employees will have to be added back to the basic salary, and provident fund contributions computed against this higher value. This, in turn, will result in a lower take-home pay.
The circular, dated November 30, 2012, was issued after internal review meetings held in late November and has been forwarded to Employee Provident Fund offices across India.
Historically, most companies have been computing provident fund (PF) contributions (at 12% each by the employer and employee) against basic salary and dearness allowance only. However, the definition of basic wages has been a contentious issue, with PF authorities claiming that companies split the basic wages into various allowances to reduce the quantum of PF contributions.
The circular addresses this "splitting up" practice adopted by employers. It states that basic wages will include all allowances that are "ordinarily, necessarily, and uniformly" paid to employees. Thus, various allowances such as conveyance, educational allowance, medical allowance, etc., will have to be taken into consideration while computing the PF contribution.
Last year, the Madras High Court and the Madhya Pradesh High Court, in two separate cases, held that various allowances paid by the employer to its employees under different heads, such as conveyance, education, food concession, medical, special holidays, night shift incentives, city compensatory allowance, etc., qualify as basic wages under section 2(b) of the PF Act and need to be included while computing the PF contribution.
Based on these judgments, PF officials conducted audits on India Inc. and raised demands to recover the differential PF contributions. Subsequently, pending dismissal of the writ petitions filed by these companies, the audits were held in abeyance.
"Following this circular, the PF officials may once again commence audits of Indian companies to ascertain whether the PF contribution has been rightly computed and deposited," says Yatin Pathak, a chartered accountant.
Sonu Iyer, a partner at Ernst and Young, points out a possible shelter that could be available for employees in India. The Proviso to paragraph 26A of the PF Scheme allows PF contributions by the employee as well as the employers on a maximum notional level of Rs. 6,500 per month, instead of the entire salary (including various allowances). The rate remains the same at 12% each for the employer and employee contributions, respectively.
"Not many employers have opted for this route, as PF is part of the employee's cost to the company and it also provides a tax shield to the employees. Now, if the employer organization suddenly wishes to exercise this option and compute PF contributions only against Rs. 6,500 per month, it is not clear whether the PF authorities will oblige," Iyer explains.
Expatriate workers from India also have to contribute to PF, even if their salary is paid outside India (unless they have an exemption owing to a social security arrangement with the country to which they have been deputed). Unfortunately, for them, this notional limit of Rs. 6,500 doesn't apply. "If an employer has expat workers, there is a higher likelihood of them being subject to scrutiny by PF authorities," adds Iyer.
A similar matter is up for interpretation before the Supreme Court, but until then, PF authorities are likely to commence audits and raise demands on India Inc, based on the circular.
I invite discussion on this topic.
Thanks and regards.
Keshav Korgaonkar
From India, Mumbai
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Hi, Please let me know whether this will be applicable to organization who maintains PF in their own trust. Any idea on effective date. Regards, Shrinivas
From India, Bangalore
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From India, Bangalore
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Dear All The circular is attached herewith alongwith the Madras High Court ruling of last year
From India, Mumbai
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From India, Mumbai
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Dear All,
I really want to know when for the first time (date/month) any such circular has been circulated? My comment is that if it's really coming into the picture, it should not be postdated. Ideally, they can implement this new circular with effect from January 2013 or any other such date.
Thanks
From India, Mumbai
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I really want to know when for the first time (date/month) any such circular has been circulated? My comment is that if it's really coming into the picture, it should not be postdated. Ideally, they can implement this new circular with effect from January 2013 or any other such date.
Thanks
From India, Mumbai
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Dear All,
I have not come across any circular by EPFO dated 30.11.2012 except on 7A guidelines. The said circular was posted by me yesterday under the subject: 7A guidelines by EPFO dated 30.11.2012.
The said circular at point no. 12 says as follows:
SPLITTING OF WAGES - Basic wages, by its own definition, encompass all the payments except the specified exclusions. All such allowances that are ordinarily, necessarily, and uniformly paid to the employees are to be treated as part of the basic wages. The confusion in the definition of wages (and hence the issue of splitting of wages) primarily arises from the expression "commission or any other similar allowance payable to the employee" in Section 2(b)(ii) of the Act. "Commission" and "any other similar allowance" are read as two separate expressions, and hence "any other allowance" is read as an omnibus exclusion, thereby encouraging the subterfuge of splitting of wages to exclude the PF liabilities. The expression "commission or any other similar allowance payable to the employee" is one continuous term, meaning commission or any other "commission"-like allowance by whatever nomenclature referred. Thus, "basic wages" are subject to exclusions expressly referred to in the above definition and no other.
It seems the author of the article is referring to this circular and point no. 12 therein.
Members of the forum are requested to discuss this topic and come to some conclusion.
Thanks and regards.
Keshav Korgaonkar
From India, Mumbai
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I have not come across any circular by EPFO dated 30.11.2012 except on 7A guidelines. The said circular was posted by me yesterday under the subject: 7A guidelines by EPFO dated 30.11.2012.
The said circular at point no. 12 says as follows:
SPLITTING OF WAGES - Basic wages, by its own definition, encompass all the payments except the specified exclusions. All such allowances that are ordinarily, necessarily, and uniformly paid to the employees are to be treated as part of the basic wages. The confusion in the definition of wages (and hence the issue of splitting of wages) primarily arises from the expression "commission or any other similar allowance payable to the employee" in Section 2(b)(ii) of the Act. "Commission" and "any other similar allowance" are read as two separate expressions, and hence "any other allowance" is read as an omnibus exclusion, thereby encouraging the subterfuge of splitting of wages to exclude the PF liabilities. The expression "commission or any other similar allowance payable to the employee" is one continuous term, meaning commission or any other "commission"-like allowance by whatever nomenclature referred. Thus, "basic wages" are subject to exclusions expressly referred to in the above definition and no other.
It seems the author of the article is referring to this circular and point no. 12 therein.
Members of the forum are requested to discuss this topic and come to some conclusion.
Thanks and regards.
Keshav Korgaonkar
From India, Mumbai
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Dear all,
I received the information through "Times of India" newspaper on December 11, 2012. The main title was "SAVE MORE IN PF BUT TAKE LESS HOME AS SALARY." They mentioned that previously the PF contribution was being computed as 12% of basic and DA. However, now it will be computed on basic + DA + all allowances. They provided an example:
Employee basic: 25,000
Conveyance: 5,000
Special incentive: 3,000
Previously, we calculated PF as 12% of basic i.e., 25,000 * 12% = 6,000. Now, it will be 33,000 * 12% = 7,920. They did not mention the PF limit, whether it was last at 6,500 or if there is a new calculation now. Employees with basic and DA exceeding 6,500 were not legally bound to contribute to PF, but the newspaper did not specify any PF limit.
If you have any information regarding the new PF limit, please inform me and others through Cite HR.
Thank you.
From India, Chandigarh
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I received the information through "Times of India" newspaper on December 11, 2012. The main title was "SAVE MORE IN PF BUT TAKE LESS HOME AS SALARY." They mentioned that previously the PF contribution was being computed as 12% of basic and DA. However, now it will be computed on basic + DA + all allowances. They provided an example:
Employee basic: 25,000
Conveyance: 5,000
Special incentive: 3,000
Previously, we calculated PF as 12% of basic i.e., 25,000 * 12% = 6,000. Now, it will be 33,000 * 12% = 7,920. They did not mention the PF limit, whether it was last at 6,500 or if there is a new calculation now. Employees with basic and DA exceeding 6,500 were not legally bound to contribute to PF, but the newspaper did not specify any PF limit.
If you have any information regarding the new PF limit, please inform me and others through Cite HR.
Thank you.
From India, Chandigarh
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Dear Members,
There is no need to panic over this article. This platform should be used for discussing the article in light of recent case laws and matters before the Honorable Supreme Court. According to me, the judgment of the Honorable Supreme Court, when it comes, will be the ultimate decisive move.
Thanks and regards,
Keshav Korgaonkar
From India, Mumbai
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There is no need to panic over this article. This platform should be used for discussing the article in light of recent case laws and matters before the Honorable Supreme Court. According to me, the judgment of the Honorable Supreme Court, when it comes, will be the ultimate decisive move.
Thanks and regards,
Keshav Korgaonkar
From India, Mumbai
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Dear All,
Editorial opinion of ET (dated 12.12.2012) is as follows:
"Forcing workers to divert more of their salary to the provident fund is wrong."
The Employees' Provident Fund Organisation's (EPFO) decision to include all allowances in the salary amount, of which 24% (12% each by the employee and by the employer) has to be mandatorily saved with the PF, is downright retrograde. It thinks it is helping employees, preventing employers from lowering their contribution to the employee's retirement savings.
This is pure delusion. All that would happen is that the employee's take-home salary would come down drastically, she would get to spend less, and get to save less in a manner of her choosing and end up with both lower present consumption and lower deferred consumption, given the miserable track record of the EPFO in managing workers' savings. The move would also depress overall growth: consumer spending would be constrained as Indian workers practice forced austerity.
The circular was apparently prompted by two independent rulings, by the Madras High Court and the Madhya Pradesh High Court, holding the various allowances paid by the employer to the employee to be part of basic wages. Historically, most companies have computed PF contributions as a share of basic salary and dearness allowance.
The EPFO claims that employers split wages into different allowances to reduce their PF contributions. However, the contribution to the PF is a part of an employee's cost to the company (CTC). An employer can restructure the entire salary, including PF contributions, to keep CTC unchanged.
The EPFO's new norms would only serve to curtail an employee's consumption and freedom to choose how to save for the future. The agency would grab hold of all savings and invest them in its retarded manner and generate tiny returns. It turns to perverse means, such as dipping into inoperative accounts, to enhance its payout.
The larger point is that the management of the EPF is terrible, unlike in the case of the National Pension System (NPS), in which employees have some choice in the allocation of their savings to different instruments with different risk-reward profiles. The only reform that the EPFO warrants is voluntary migration of workers to the NPS, along with their employers' contribution.
This is for your information.
Thanks and regards.
Keshav Korgaonkar
From India, Mumbai
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Editorial opinion of ET (dated 12.12.2012) is as follows:
"Forcing workers to divert more of their salary to the provident fund is wrong."
The Employees' Provident Fund Organisation's (EPFO) decision to include all allowances in the salary amount, of which 24% (12% each by the employee and by the employer) has to be mandatorily saved with the PF, is downright retrograde. It thinks it is helping employees, preventing employers from lowering their contribution to the employee's retirement savings.
This is pure delusion. All that would happen is that the employee's take-home salary would come down drastically, she would get to spend less, and get to save less in a manner of her choosing and end up with both lower present consumption and lower deferred consumption, given the miserable track record of the EPFO in managing workers' savings. The move would also depress overall growth: consumer spending would be constrained as Indian workers practice forced austerity.
The circular was apparently prompted by two independent rulings, by the Madras High Court and the Madhya Pradesh High Court, holding the various allowances paid by the employer to the employee to be part of basic wages. Historically, most companies have computed PF contributions as a share of basic salary and dearness allowance.
The EPFO claims that employers split wages into different allowances to reduce their PF contributions. However, the contribution to the PF is a part of an employee's cost to the company (CTC). An employer can restructure the entire salary, including PF contributions, to keep CTC unchanged.
The EPFO's new norms would only serve to curtail an employee's consumption and freedom to choose how to save for the future. The agency would grab hold of all savings and invest them in its retarded manner and generate tiny returns. It turns to perverse means, such as dipping into inoperative accounts, to enhance its payout.
The larger point is that the management of the EPF is terrible, unlike in the case of the National Pension System (NPS), in which employees have some choice in the allocation of their savings to different instruments with different risk-reward profiles. The only reform that the EPFO warrants is voluntary migration of workers to the NPS, along with their employers' contribution.
This is for your information.
Thanks and regards.
Keshav Korgaonkar
From India, Mumbai
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Dear Friends,
Keshav Korgoankar is right; we should not panic at this stage as the amendment or change made by the Authority only, not newspapers. Till today, the judgment given by the Honorable Supreme Court in Bridge Roof Company vs. Union of India in the matter of "Basic Wages" is still valid.
Regards,
Arihant
From India, Surat
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Keshav Korgoankar is right; we should not panic at this stage as the amendment or change made by the Authority only, not newspapers. Till today, the judgment given by the Honorable Supreme Court in Bridge Roof Company vs. Union of India in the matter of "Basic Wages" is still valid.
Regards,
Arihant
From India, Surat
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Dear All,
Unions want EPFO circular withdrawn
New Delhi: Trade unions have joined hands to demand the withdrawal of the Employees' Provident Fund Organization's recent circular barring investigations beyond seven years and making it tough for employees to claim their statutory dues.
In a circular issued on November 30, the day central provident fund commissioner R C Mishra retired, EPFO set a limitation on assessment beyond seven years. In addition, it put curbs on inquiries where a company fails to produce records. The move is seen to be especially beneficial for real estate and construction companies that depend on project-specific migrant labor.
In a letter to the labor secretary, Hind Mazdoor Sabha secretary A D Nagpal, who is also a member of the EPFO board, said the clause amounted to interference in the quasi-judicial powers of the assessing officer, which in any case was pending before the Supreme Court. He cited an order by the Bombay High Court to argue the case and said, "By these directions, we are giving undue advantage to employers who will get the benefit of non-production of records."
Citus A K Padmanabhan said, "It is anti-worker, and it should not be allowed. All unions are opposing it."
This is for your information.
Thanks and regards,
Keshav Korgaonkar
From India, Mumbai
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Unions want EPFO circular withdrawn
New Delhi: Trade unions have joined hands to demand the withdrawal of the Employees' Provident Fund Organization's recent circular barring investigations beyond seven years and making it tough for employees to claim their statutory dues.
In a circular issued on November 30, the day central provident fund commissioner R C Mishra retired, EPFO set a limitation on assessment beyond seven years. In addition, it put curbs on inquiries where a company fails to produce records. The move is seen to be especially beneficial for real estate and construction companies that depend on project-specific migrant labor.
In a letter to the labor secretary, Hind Mazdoor Sabha secretary A D Nagpal, who is also a member of the EPFO board, said the clause amounted to interference in the quasi-judicial powers of the assessing officer, which in any case was pending before the Supreme Court. He cited an order by the Bombay High Court to argue the case and said, "By these directions, we are giving undue advantage to employers who will get the benefit of non-production of records."
Citus A K Padmanabhan said, "It is anti-worker, and it should not be allowed. All unions are opposing it."
This is for your information.
Thanks and regards,
Keshav Korgaonkar
From India, Mumbai
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Hello everyone,
In this article, they have mentioned that we need to consider all the components for the calculation of PF. My query is, do we need to keep the limit of Rs. 6500/- (6500*12% = Rs. 780/-) as a minimum, or do we need to consider the actual amount of all components? If it is required to consider all components without any minimum limitation (Rs. 6500), then from which date do we have to apply this law? Can anyone kindly clarify this issue?
Thanks & Regards, Sheela
From India, Coimbatore
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In this article, they have mentioned that we need to consider all the components for the calculation of PF. My query is, do we need to keep the limit of Rs. 6500/- (6500*12% = Rs. 780/-) as a minimum, or do we need to consider the actual amount of all components? If it is required to consider all components without any minimum limitation (Rs. 6500), then from which date do we have to apply this law? Can anyone kindly clarify this issue?
Thanks & Regards, Sheela
From India, Coimbatore
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Dear Sir, As per my view EPF limit is 6500 if any one contributing more than this.it is not bound to pay as per this notification. regards Nishant
From India, Ranchi
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From India, Ranchi
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Hi all This will come as an amendment and then we have start implementing the same, this is not very clear. Regards Gopal
From India, Mumbai
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From India, Mumbai
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In my view, we should not go by the headings of newspapers. There is no obligation for either employers or employees to contribute PF on more than Rs. 6,500. If the salary of an employee on which PF contributions are made is Rs. 6,500 or more, the employer can limit the contribution to Rs. 6,500 or more, and similarly for the employee.
This circular will affect low-paid employees whose basic salary (for the purpose of PF contribution) after bifurcation was less than Rs. 6,500. If their salary is Rs. 6,500 or more, they have to contribute at least Rs. 6,500. On the flip side, this will benefit these employees by saving more for the future in a continuously rising inflation scenario. Companies will not be significantly affected as they pay employees on a CTC basis and can manage the situation by restricting contributions to no more than Rs. 6,500.
Regards,
SK
From India, Delhi
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This circular will affect low-paid employees whose basic salary (for the purpose of PF contribution) after bifurcation was less than Rs. 6,500. If their salary is Rs. 6,500 or more, they have to contribute at least Rs. 6,500. On the flip side, this will benefit these employees by saving more for the future in a continuously rising inflation scenario. Companies will not be significantly affected as they pay employees on a CTC basis and can manage the situation by restricting contributions to no more than Rs. 6,500.
Regards,
SK
From India, Delhi
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Dear Friends, Please go through the attachment of Different Concept of Minimum Wages. Regards, Arihant
From India, Surat
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From India, Surat
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In many organizations, EPF is calculated not against the amount of Rs. 6,500 but against the higher pay (salary plus DA). The article does mention that in such cases:
"Proviso to paragraph 26A of the PF Scheme allows PF contributions by the employee as well as the employers on a maximum notional level of Rs 6,500 per month, instead of the entire salary (including various allowances). The rate remains the same at 12% each for the employer and employee contributions respectively. Not many employers have opted for this route, as PF is part of the employee's cost to the company and it also gives a tax shield to the employees. Now, if the employer organization suddenly wishes to exercise this option and compute PF contributions only against Rs 6,500 per month (instead of the higher salary amount earlier), it is not clear whether the PF authorities will oblige."
Member SK12 rightly said, "If their salary is Rs. 6500 or more, they have to contribute at least Rs. 6,500. However, if they have contributed against a higher sum in the past, the issue is whether the PF authorities will now accept contributions against a sum of Rs. 6,500."
From India, Mumbai
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"Proviso to paragraph 26A of the PF Scheme allows PF contributions by the employee as well as the employers on a maximum notional level of Rs 6,500 per month, instead of the entire salary (including various allowances). The rate remains the same at 12% each for the employer and employee contributions respectively. Not many employers have opted for this route, as PF is part of the employee's cost to the company and it also gives a tax shield to the employees. Now, if the employer organization suddenly wishes to exercise this option and compute PF contributions only against Rs 6,500 per month (instead of the higher salary amount earlier), it is not clear whether the PF authorities will oblige."
Member SK12 rightly said, "If their salary is Rs. 6500 or more, they have to contribute at least Rs. 6,500. However, if they have contributed against a higher sum in the past, the issue is whether the PF authorities will now accept contributions against a sum of Rs. 6,500."
From India, Mumbai
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Dear all,
Certainly, it is going to affect the employees who are receiving lower salaries. However, I believe that HRA (House Rent Allowance) is excluded from the impact.
Could you please provide further clarification on what is included and what is excluded?
Thank you all in advance.
From India, Kolhapur
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Certainly, it is going to affect the employees who are receiving lower salaries. However, I believe that HRA (House Rent Allowance) is excluded from the impact.
Could you please provide further clarification on what is included and what is excluded?
Thank you all in advance.
From India, Kolhapur
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Shrinisar: The definition of basic wages under the PF Act specifically excludes HRA. It is useful to read all earlier judicial decisions to determine what allowances can be added back to the basic wages on the grounds that wages were split up to lower PF contribution. The problem is also acute for companies which kept basic wages lower than the sum total of various other allowances and where the PF was not computed against the minimum of Rs. 6500.
From India, Mumbai
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From India, Mumbai
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I am continuing with the above post.
The PF office is not clarifying whether for an employee where EPF was earlier not computed against Rs. 6500, but a much higher sum of salary, they can now request that EPF be computed against Rs. 6500 only.
Let's consider a salary range: Basic salary is Rs. 50,000, and allowances are Rs. 40,000. The employee is fine with EPF against Rs. 50,000 but not Rs. 90,000.
Can the employer organization now calculate EPF against Rs. 6,500? Apart from a consent letter from the employee, is there any form to fill in?
I will provide an update after the meeting with the EPF office.
From India, Mumbai
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The PF office is not clarifying whether for an employee where EPF was earlier not computed against Rs. 6500, but a much higher sum of salary, they can now request that EPF be computed against Rs. 6500 only.
Let's consider a salary range: Basic salary is Rs. 50,000, and allowances are Rs. 40,000. The employee is fine with EPF against Rs. 50,000 but not Rs. 90,000.
Can the employer organization now calculate EPF against Rs. 6,500? Apart from a consent letter from the employee, is there any form to fill in?
I will provide an update after the meeting with the EPF office.
From India, Mumbai
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There is good news. The circular of November 30 has been kept in abeyance according to Labour Law Reporter.
PROVIDENT FUND CIRCULAR KEPT IN ABEYANCE: LABOUR MINISTER
Union Labour and Employment Minister Mallikarjun Kharge on December 13, 2012, said that the Circular dated November 30, 2012, pertaining to Guidelines for Quasi-judicial proceedings under Section 7A of the EPF & MP Act, 1952, issued by the EPFO on the inclusion of certain allowances, etc., for calculating Provident Fund contributions is to be kept in abeyance. Therefore, the status quo will continue.
Editor
LABOUR LAW REPORTER
From India, Mumbai
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PROVIDENT FUND CIRCULAR KEPT IN ABEYANCE: LABOUR MINISTER
Union Labour and Employment Minister Mallikarjun Kharge on December 13, 2012, said that the Circular dated November 30, 2012, pertaining to Guidelines for Quasi-judicial proceedings under Section 7A of the EPF & MP Act, 1952, issued by the EPFO on the inclusion of certain allowances, etc., for calculating Provident Fund contributions is to be kept in abeyance. Therefore, the status quo will continue.
Editor
LABOUR LAW REPORTER
From India, Mumbai
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For Information: Article published in The Times of India:
Government to review EPF circular on salary, allowances
All can breathe easy with the government reviewing a circular issued by the Employees' Provident Fund Organization (EPFO) that had asked employers to deduct the subscription from the gross salary, including allowances, a move that would have reduced the take-home salary of over 5 crore workers.
A senior Labour Ministry official said there was a "rethink" on the circular that was issued on November 30, although a final decision is yet to be taken.
The official added that the circular did not actually change the rules and had not clarified which allowances needed to be included in the calculation of basic wage. The circular was meant to ensure that employers did not shirk their responsibility, the official added.
Officials said the circular was largely meant to protect employees earning below Rs 6,500 per month (for whom EPF is mandatory). In such instances, there have been cases where employers have split up the basic wage into various allowances, so as to reduce their contribution to the EPF.
It is not mandatory for those earning above Rs 6,500 per month to opt for the EPF, but once employees opt for EPF, there is no opting out of it until the amount is withdrawn in full. Many employers expressed reservations after TOI first reported it on Tuesday as the circular would impact their wage bills. Typically, high-salaried employees in the private sector do not opt for EPF.
Employees have to contribute 12% of their basic wage towards PF, and the amount is matched by their employers. The issue of employers shrinking the size of the basic wage and inflating allowances to reduce their PF burden has long plagued the EPFO.
Both employers and trade unions objected after TOI first reported it on Tuesday. "We have sent a letter to the Labour Ministry objecting to certain provisions in the circular," D L Sachdev, AITUC national secretary and trade union representative in the Central Board of Trustees of the EPFO, said. The consent of the CBT was not taken before issuing the circular, Sachdev added.
Besides, in a note, consulting firm PricewaterhouseCoopers pointed to conflicting judgments on the subject. "Recently, the Madhya Pradesh High Court ruled that allowances that are given universally, necessarily, and ordinarily to all employees form part of the basic salary. The judgment has been challenged in the Supreme Court and the matter is yet to be decided. The decision of the SC would perhaps provide a direction on the matter but until then, this circular is a wake-up call for the employers to review their position in relation to the compensation structure," it said.
From India, Coimbatore
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Government to review EPF circular on salary, allowances
All can breathe easy with the government reviewing a circular issued by the Employees' Provident Fund Organization (EPFO) that had asked employers to deduct the subscription from the gross salary, including allowances, a move that would have reduced the take-home salary of over 5 crore workers.
A senior Labour Ministry official said there was a "rethink" on the circular that was issued on November 30, although a final decision is yet to be taken.
The official added that the circular did not actually change the rules and had not clarified which allowances needed to be included in the calculation of basic wage. The circular was meant to ensure that employers did not shirk their responsibility, the official added.
Officials said the circular was largely meant to protect employees earning below Rs 6,500 per month (for whom EPF is mandatory). In such instances, there have been cases where employers have split up the basic wage into various allowances, so as to reduce their contribution to the EPF.
It is not mandatory for those earning above Rs 6,500 per month to opt for the EPF, but once employees opt for EPF, there is no opting out of it until the amount is withdrawn in full. Many employers expressed reservations after TOI first reported it on Tuesday as the circular would impact their wage bills. Typically, high-salaried employees in the private sector do not opt for EPF.
Employees have to contribute 12% of their basic wage towards PF, and the amount is matched by their employers. The issue of employers shrinking the size of the basic wage and inflating allowances to reduce their PF burden has long plagued the EPFO.
Both employers and trade unions objected after TOI first reported it on Tuesday. "We have sent a letter to the Labour Ministry objecting to certain provisions in the circular," D L Sachdev, AITUC national secretary and trade union representative in the Central Board of Trustees of the EPFO, said. The consent of the CBT was not taken before issuing the circular, Sachdev added.
Besides, in a note, consulting firm PricewaterhouseCoopers pointed to conflicting judgments on the subject. "Recently, the Madhya Pradesh High Court ruled that allowances that are given universally, necessarily, and ordinarily to all employees form part of the basic salary. The judgment has been challenged in the Supreme Court and the matter is yet to be decided. The decision of the SC would perhaps provide a direction on the matter but until then, this circular is a wake-up call for the employers to review their position in relation to the compensation structure," it said.
From India, Coimbatore
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Dear All,
I would like to share that this article is not relevant. The writer himself seems confused. The main issue is that currently, we have a ceiling of Rs. 6500/- basic per month, but the minimum wage is Rs. 5044/- per month for 26 days. There is a need to increase the basic limit of PF from 6500/- to at least Rs. 9000/-. Similarly, ESIC medical services are subpar; they need to improve the services or stop taking contributions.
Thank you.
Parvez
9374149908
From India, Ahmadabad
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I would like to share that this article is not relevant. The writer himself seems confused. The main issue is that currently, we have a ceiling of Rs. 6500/- basic per month, but the minimum wage is Rs. 5044/- per month for 26 days. There is a need to increase the basic limit of PF from 6500/- to at least Rs. 9000/-. Similarly, ESIC medical services are subpar; they need to improve the services or stop taking contributions.
Thank you.
Parvez
9374149908
From India, Ahmadabad
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Dear All,
Please find below the latest (Today's) news article on the subject:
NEW DELHI: Business chamber Ficci has opposed the proposed changes to the definition of 'basic wages' under the Employees' Provident Fund & Miscellaneous Provisions Act (EPF and MP Act) 1952.
The government had introduced a triple test - 'Ordinarily, Necessarily, and Uniformly' - to define basic wages for provident fund deduction through a circular issued in November last year but had later stayed its implementation.
Ficci warned that the proposal will have 'huge financial implications both for industry and government and may even be counterproductive to the EPFO, as organizations extending coverage to employees receiving salaries above 6,500 may choose to opt out, depriving the employees of coverage under a globally renowned social security scheme.'
Under the current rules, an organized sector worker is not required to mandatorily join the provident fund scheme of the EPFO if his basic salary exceeds 6,500 a month.
"Most employees today join an organization above this statutory limit, and they are voluntarily covered by the industry," the industry chamber said in a statement. It has argued that PF deduction should be on the full amount of 'minimum wages' where such wages are being paid under the Minimum Wages Act, 1948. "For employees who are on a higher salary bracket and receiving allowances as incentives to promote business, the PF contribution should be restricted to basic salary," it said.
From India, Mumbai
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Please find below the latest (Today's) news article on the subject:
NEW DELHI: Business chamber Ficci has opposed the proposed changes to the definition of 'basic wages' under the Employees' Provident Fund & Miscellaneous Provisions Act (EPF and MP Act) 1952.
The government had introduced a triple test - 'Ordinarily, Necessarily, and Uniformly' - to define basic wages for provident fund deduction through a circular issued in November last year but had later stayed its implementation.
Ficci warned that the proposal will have 'huge financial implications both for industry and government and may even be counterproductive to the EPFO, as organizations extending coverage to employees receiving salaries above 6,500 may choose to opt out, depriving the employees of coverage under a globally renowned social security scheme.'
Under the current rules, an organized sector worker is not required to mandatorily join the provident fund scheme of the EPFO if his basic salary exceeds 6,500 a month.
"Most employees today join an organization above this statutory limit, and they are voluntarily covered by the industry," the industry chamber said in a statement. It has argued that PF deduction should be on the full amount of 'minimum wages' where such wages are being paid under the Minimum Wages Act, 1948. "For employees who are on a higher salary bracket and receiving allowances as incentives to promote business, the PF contribution should be restricted to basic salary," it said.
From India, Mumbai
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