I am joining your family now and am very happy. My discussion is about PF rules. My junior recently joined the Mumbai production unit and asked me a question regarding his company's PF-related matters. Kindly provide your reply.
Case Study: PF Deduction Practices
The case study is that they were deducting the PF amount for Basic + DA only from 2012 to September 2014. After September 2014, they started deducting Basic + DA + other allowances except HRA. Now, the PF inspector has stated that the amount deducted from 2012 to September 2014 should include other allowances for both the employer and employee, along with the interest amount to be paid to the EPF office. Kindly advise on how to handle this situation.
Thank you.
From India, Chennai
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Case Study: PF Deduction Practices
The case study is that they were deducting the PF amount for Basic + DA only from 2012 to September 2014. After September 2014, they started deducting Basic + DA + other allowances except HRA. Now, the PF inspector has stated that the amount deducted from 2012 to September 2014 should include other allowances for both the employer and employee, along with the interest amount to be paid to the EPF office. Kindly advise on how to handle this situation.
Thank you.
From India, Chennai
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Understanding EPF Contributions: Basic Wages and Allowances
The EPF Act clearly states that you need to deduct PF contributions on Basic + DA only. Allowances are not required to be deducted. There are several court orders on this available on the internet. You can ask him to provide these instructions in writing. The Act specifies as follows:
Definition of Basic Wages
Sec 2(b) "basic wages" means all emoluments which are earned by an employee while on duty, 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 work done in such employment;
Contributions and Schemes
Sec 6. Contributions and matters which may be provided for in Schemes: The contribution which shall be paid by the employer to the Fund shall be ten percent of the basic wages, dearness allowance, and retaining allowance, if any, for the time being payable to each of the employees, whether employed by him directly or by or through a contractor. The employee's contribution shall be equal to the contribution payable by the employer in respect of him and may, if any employee so desires, be an amount exceeding ten percent of his basic wages, dearness allowance, and retaining allowance, if any, subject to the condition that the employer shall not be under an obligation to pay any contribution over and above his contribution payable under this section:
Provided that in its application to any establishment or class of establishments which the Central Government, after making such inquiry as it deems fit, may, by notification in the Official Gazette specify, this section shall be subject to the modification that for the words "ten percent," at both the places where they occur, the words "twelve percent" shall be substituted:
Provided further that where the amount of any contribution payable under this Act involves a fraction of a rupee, the Scheme may provide for rounding off of such fraction to the nearest rupee, half of a rupee, or quarter of a rupee.
Explanations
Explanation I – For the purposes of this section, dearness allowance shall be deemed to include also the cash value of any food concession allowed to the employee.
Explanation II – For the purposes of this section, "retaining allowance" means allowance payable for the time being to an employee of any factory or other establishment during any period in which the establishment is not working, for retaining his services.
Regards.
From India, Chennai
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151The EPF Act clearly states that you need to deduct PF contributions on Basic + DA only. Allowances are not required to be deducted. There are several court orders on this available on the internet. You can ask him to provide these instructions in writing. The Act specifies as follows:
Definition of Basic Wages
Sec 2(b) "basic wages" means all emoluments which are earned by an employee while on duty, 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 work done in such employment;
Contributions and Schemes
Sec 6. Contributions and matters which may be provided for in Schemes: The contribution which shall be paid by the employer to the Fund shall be ten percent of the basic wages, dearness allowance, and retaining allowance, if any, for the time being payable to each of the employees, whether employed by him directly or by or through a contractor. The employee's contribution shall be equal to the contribution payable by the employer in respect of him and may, if any employee so desires, be an amount exceeding ten percent of his basic wages, dearness allowance, and retaining allowance, if any, subject to the condition that the employer shall not be under an obligation to pay any contribution over and above his contribution payable under this section:
Provided that in its application to any establishment or class of establishments which the Central Government, after making such inquiry as it deems fit, may, by notification in the Official Gazette specify, this section shall be subject to the modification that for the words "ten percent," at both the places where they occur, the words "twelve percent" shall be substituted:
Provided further that where the amount of any contribution payable under this Act involves a fraction of a rupee, the Scheme may provide for rounding off of such fraction to the nearest rupee, half of a rupee, or quarter of a rupee.
Explanations
Explanation I – For the purposes of this section, dearness allowance shall be deemed to include also the cash value of any food concession allowed to the employee.
Explanation II – For the purposes of this section, "retaining allowance" means allowance payable for the time being to an employee of any factory or other establishment during any period in which the establishment is not working, for retaining his services.
Regards.
From India, Chennai
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