Dear All,
One of our employees who recently joined emailed us about the information that the PF employer contribution is not to be a part of CTC. The employer has to pay it additionally. Please let me know all of your views.
For your reference, this is the content:
Notification Issued on 18th March, 2014
A notification was issued on 18th March 2014, after the approval of CPFC, to clarify that provident fund contribution under section 6 is not payable on Cost to Company (CTC). Below is an excerpt from the notification.
It is observed that the import of section 6 of the Employees' Provident Funds & Miscellaneous Provisions Act, 1952, is not currently understood by some field offices, which results in complaints and is often a cause for unnecessary litigation. They are unwittingly asking employers not only to pay contributions on cost to company (CTC) but also questioning them on why reflecting the employer's contribution to the provident fund (PF) under CTC should not be treated as a deduction from employees' salaries and consequently why this should not be treated as a violation by the employer of paragraph 31 of the Employees' Provident Scheme, 1952.
Many employers today provide a breakdown of the outgoings under different heads as CTC in the appointment letter issued to a new employee. CTC is the total cost, generally on a yearly basis, which an employer incurs on an employee during their employment/services of holding office in the company/establishment and is normally much above the wage ceiling on which PF is payable under the act and the schemes.
Definition of Basic Wages
"Basic wages" as defined under section 2(b) of the act means "all emoluments" which are earned by an employee while on duty or on leave in accordance with the terms of the contract of employment but doesn't include among other things:
- HRA
- Overtime Allowance
- Bonus
- Commission
- Any other similar allowance payable to the employee
Section 6: Contribution
Section 6, which deals with "contribution," states that "The contribution which shall be paid by the employer to the fund shall be" a certain percentage "of the basic wages, dearness allowance, and retaining allowance (if any) for the time being payable to each of the employees." Thus, contribution under section 6 is payable only on basic wages (which excludes HRA, Overtime Allowance, Bonus, Commission, etc.), dearness allowance (which includes the cash value of any food concession), and retaining allowance, if any.
Emoluments mean all earnings by an employee for the work done by them in an establishment and include Bonus, Commission, etc., whereas basic wages (as defined in the Act) expressly exclude these items/components.
CTC can't therefore be construed to mean "emoluments" which are earned by an employee within the meaning of the term "basic wages" as given under section 2(b) of the Act, and contribution under section 6 of the Act can't be thus charged on CTC.
Paragraph 31 of the Employees' Provident Funds Scheme, 1952
Paragraph 31 of the Employees' Provident Funds Scheme, 1952, states that "Notwithstanding any contract to the contrary, the employer shall not be entitled to deduct the employer's contribution from the wage of a member or otherwise to recover it from him."
Though wage is not defined in the Act or Scheme, when cost to company is the sum total of all the earnings of an employee in a year and includes all expenses made by the company on him for his services and contribution as per section 6 of the Act is only on certain components of wage (as noted in Para 4 above) on which PF is deductible/payable by the employer, it can't be alleged that the employer is deducting the employer's share of contribution towards PF from the wage of the employee or is otherwise recovering it from him and is thereby violating para 31 of the EPF scheme, simply because he is showing it as a component of CTC, more so, if he is showing the contribution payable by the employer separately in the balance sheet. It is thus not wrong if the employer is showing the employer's share of provident fund contribution as a part of CTC of the employee.
In view of the above, the employer's share of PF contribution booked as a part of CTC in respect of his employees by the employer doesn't mean that the employer is deducting the employer's contribution from the salary of the employees. Accordingly, all components of the cost of the company can't be treated as emoluments under section 2(b) of the EPF & MP Act, 1952.
From India, Brahmapur
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13One of our employees who recently joined emailed us about the information that the PF employer contribution is not to be a part of CTC. The employer has to pay it additionally. Please let me know all of your views.
For your reference, this is the content:
Notification Issued on 18th March, 2014
A notification was issued on 18th March 2014, after the approval of CPFC, to clarify that provident fund contribution under section 6 is not payable on Cost to Company (CTC). Below is an excerpt from the notification.
It is observed that the import of section 6 of the Employees' Provident Funds & Miscellaneous Provisions Act, 1952, is not currently understood by some field offices, which results in complaints and is often a cause for unnecessary litigation. They are unwittingly asking employers not only to pay contributions on cost to company (CTC) but also questioning them on why reflecting the employer's contribution to the provident fund (PF) under CTC should not be treated as a deduction from employees' salaries and consequently why this should not be treated as a violation by the employer of paragraph 31 of the Employees' Provident Scheme, 1952.
Many employers today provide a breakdown of the outgoings under different heads as CTC in the appointment letter issued to a new employee. CTC is the total cost, generally on a yearly basis, which an employer incurs on an employee during their employment/services of holding office in the company/establishment and is normally much above the wage ceiling on which PF is payable under the act and the schemes.
Definition of Basic Wages
"Basic wages" as defined under section 2(b) of the act means "all emoluments" which are earned by an employee while on duty or on leave in accordance with the terms of the contract of employment but doesn't include among other things:
- HRA
- Overtime Allowance
- Bonus
- Commission
- Any other similar allowance payable to the employee
Section 6: Contribution
Section 6, which deals with "contribution," states that "The contribution which shall be paid by the employer to the fund shall be" a certain percentage "of the basic wages, dearness allowance, and retaining allowance (if any) for the time being payable to each of the employees." Thus, contribution under section 6 is payable only on basic wages (which excludes HRA, Overtime Allowance, Bonus, Commission, etc.), dearness allowance (which includes the cash value of any food concession), and retaining allowance, if any.
Emoluments mean all earnings by an employee for the work done by them in an establishment and include Bonus, Commission, etc., whereas basic wages (as defined in the Act) expressly exclude these items/components.
CTC can't therefore be construed to mean "emoluments" which are earned by an employee within the meaning of the term "basic wages" as given under section 2(b) of the Act, and contribution under section 6 of the Act can't be thus charged on CTC.
Paragraph 31 of the Employees' Provident Funds Scheme, 1952
Paragraph 31 of the Employees' Provident Funds Scheme, 1952, states that "Notwithstanding any contract to the contrary, the employer shall not be entitled to deduct the employer's contribution from the wage of a member or otherwise to recover it from him."
Though wage is not defined in the Act or Scheme, when cost to company is the sum total of all the earnings of an employee in a year and includes all expenses made by the company on him for his services and contribution as per section 6 of the Act is only on certain components of wage (as noted in Para 4 above) on which PF is deductible/payable by the employer, it can't be alleged that the employer is deducting the employer's share of contribution towards PF from the wage of the employee or is otherwise recovering it from him and is thereby violating para 31 of the EPF scheme, simply because he is showing it as a component of CTC, more so, if he is showing the contribution payable by the employer separately in the balance sheet. It is thus not wrong if the employer is showing the employer's share of provident fund contribution as a part of CTC of the employee.
In view of the above, the employer's share of PF contribution booked as a part of CTC in respect of his employees by the employer doesn't mean that the employer is deducting the employer's contribution from the salary of the employees. Accordingly, all components of the cost of the company can't be treated as emoluments under section 2(b) of the EPF & MP Act, 1952.
From India, Brahmapur
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The employer's contribution to the Provident Fund (PF) not being a part of the Cost to Company (CTC) is in accordance with the Employees' Provident Funds & Miscellaneous Provisions Act, 1952. The notification issued on 18th March 2014 clarifies that PF contribution under section 6 is payable only on basic wages, dearness allowance, and retaining allowance, excluding components like HRA, Overtime Allowance, Bonus, and Commission. Therefore, the employer's share of PF contribution should not be considered as a deduction from employees' salaries when included in CTC. It is essential to understand the legal provisions and definitions outlined in the Act to ensure compliance and avoid unnecessary disputes or litigations.
From India, Gurugram
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From India, Gurugram
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