Dear Members,
As we all know, we will include a special allowance in the basic wage for PF calculation as per the latest notification from the Apex body. My query is, should we include all salary components (all allowances) into the basic wage or only the special allowance?
Kindly revert back.
From India, Delhi
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13As we all know, we will include a special allowance in the basic wage for PF calculation as per the latest notification from the Apex body. My query is, should we include all salary components (all allowances) into the basic wage or only the special allowance?
Kindly revert back.
From India, Delhi
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Inclusion of Allowances in Basic Wages for PF Calculation
You should include all allowances that you pay to an employee if they are on leave with pay, or deduct from the salary if they are on leave without pay. For example, the salary of an employee is Rs 15,000 per month, of which only Rs 6,000 is the basic pay on which you were contributing to PF. As per the Employees Provident Fund and Miscellaneous Provisions Act, basic pay is the whole emoluments that an employee earns while on duty or on leave, and as such, it is Rs 15,000 which should be called basic wages.
Two reasons are there. One, if the employee takes two days of casual leave (with pay), they are paid a salary for these days not in proportion to your basic pay of Rs 6,000 but on the basis of their monthly pay, i.e., Rs 15,000. If they take leave without pay, you will deduct their salary not in proportion to Rs 6,000 but it will be Rs 15,000/30 or Rs 500 per day deducted for each day of absence. Secondly, it is Rs 15,000 that the employee has agreed to work for you or you had offered them for their labor/service. That means it is not Rs 6,000 but Rs 15,000 that is the salary as per the contract of employment.
Exclusion of HRA from PF Qualifying Salary
Though the basic salary excludes HRA, per se, the same being part of the salary cannot be excluded from the PF qualifying or contributing salary. This is because HRA is not a separate element that accrues and varies depending on the city of residence and status of the employee as to whether they own a house or are residing in a rented house, but part of the salary. As such, that should also be included in the PF qualifying salary. However, having mentioned in the exclusion part of the definition of wages, you can exclude this element from the PF qualifying salary.
In any case, the PF can be capped to a salary of Rs 15,000, and as such, if the total salary including all other allowances exceeds Rs 15,000, you can limit the contribution to 12% of Rs 15,000.
From India, Kannur
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You should include all allowances that you pay to an employee if they are on leave with pay, or deduct from the salary if they are on leave without pay. For example, the salary of an employee is Rs 15,000 per month, of which only Rs 6,000 is the basic pay on which you were contributing to PF. As per the Employees Provident Fund and Miscellaneous Provisions Act, basic pay is the whole emoluments that an employee earns while on duty or on leave, and as such, it is Rs 15,000 which should be called basic wages.
Two reasons are there. One, if the employee takes two days of casual leave (with pay), they are paid a salary for these days not in proportion to your basic pay of Rs 6,000 but on the basis of their monthly pay, i.e., Rs 15,000. If they take leave without pay, you will deduct their salary not in proportion to Rs 6,000 but it will be Rs 15,000/30 or Rs 500 per day deducted for each day of absence. Secondly, it is Rs 15,000 that the employee has agreed to work for you or you had offered them for their labor/service. That means it is not Rs 6,000 but Rs 15,000 that is the salary as per the contract of employment.
Exclusion of HRA from PF Qualifying Salary
Though the basic salary excludes HRA, per se, the same being part of the salary cannot be excluded from the PF qualifying or contributing salary. This is because HRA is not a separate element that accrues and varies depending on the city of residence and status of the employee as to whether they own a house or are residing in a rented house, but part of the salary. As such, that should also be included in the PF qualifying salary. However, having mentioned in the exclusion part of the definition of wages, you can exclude this element from the PF qualifying salary.
In any case, the PF can be capped to a salary of Rs 15,000, and as such, if the total salary including all other allowances exceeds Rs 15,000, you can limit the contribution to 12% of Rs 15,000.
From India, Kannur
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PF Notification on special allowance.pdf