Corrected Text: Dear Citehr Communities, In its recent judgment in the case of RPFC vs. Vivekananda Vidyamandir and others & Surya Roshni Ltd & Ors. vs. The State of Madhya Pradesh EPF RPFC and Ors. 2019 LLR 339 (SC), the Honorable Supreme Court has held that allowances other than those of the undermentioned types are to be considered as part of the basic wages u/s 2(b) of the EPF & MP Act, 1952, for the purpose of determination of PF Contribution: Allowances which are variable in nature; Allowances which are linked to any incentive for production resulting in greater output by an employee; or Allowances which are not paid across the board to all employees in a particular category; or Allowances which are paid especially to those who avail the opportunity. Accordingly, the allowances like special allowances, conveyance/traveling allowances, education allowances, and other similar allowances in the cases of the respective petitioners have been held as part of the basic wages, liable for deduction of PF contribution. In arriving at the conclusion, the Honorable Supreme Court has relied upon its earlier judgments in the cases of 'Bridge & Roof Company (India) Ltd' & 'Manipal Academy of Higher Education', wherein it has been categorically held by the Honorable Supreme Court that those allowances which are "universally, necessarily, and ordinarily paid to all across the board" are to be considered as basic wages. However, it appears that the present bench of the Honorable Supreme Court has interpreted the said expression "universally, necessarily, and ordinarily paid to all across the board" in the context of individual establishments only and not in the context of the entire industry as a whole. Thus, in view of the principle of natural justice and fair play and far-reaching implications of disturbing the already well-settled position in this regard, a review and reconsideration of the said judgment of the Honorable Supreme Court is desirable and warranted. Legislative Provisions as per the Governing EPF & MP Act, 1952 In order to have a proper appreciation and understanding of the issue under consideration, it will be desirable and worthwhile to consider and analyze the relevant provisions of the governing EPF & MP Act, 1952, in this regard. Section 2(b) of the EPF & MP Act, 1952 reads as under: "Section 2(b) "basic wages" means all emoluments which are earned by an employee while on duty or 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 of work done in such employment; (iii) any presents made by the employer;" "Section 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, and the employees' 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 "12 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 the quarter of a rupee. 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." Stand of the Law Making Body i.e. Ministry of Labour & Employment & the Regulatory Body EPFO, before the said SC Judgment on this issue: Circulars, Notifications & RTI Response issued by the Regulatory Body EPFO: For ready reference, the important and significant circulars and notifications issued by the Regulatory Body CPFC concerning the issue of interpretation of basic wages u/s 2(b) of EPF & MP Act, 1952, for the purpose of determination of provident fund contribution u/s 6 of the Act, having a direct bearing on the subject matter under consideration are discussed here, as under: (i) Official Response of EPFO – Head Office, Ministry of Labour & Employment, Govt. of India, New Delhi, bearing F.No. C.IV/1(63)10/RTI/948, in October 2010, in response to one RTI: In its official response to one RTI, the EPFO – Head Office, Ministry of Labour & Employment, Govt. of India, New Delhi, bearing F.No. C.IV/1(63)10/RTI/948, in October 2010, has categorically clarified that the undermentioned allowances are outside the purview of 'basic wages' u/s 2(b) of the Act, and as such don't attract payment of PF contribution, viz. (a) House Rent Allowance; (b) Education Allowance; (c) Conveyance Allowance; (d) Washing Allowance; (e) City Allowance; (f) Leave Travel Allowance; (g) Night Shift Allowance; (h) Special Allowance. It is a matter of fact that the Honorable Supreme Court, during the course of appellate pleadings, in the captioned judgment of "Surya Roshni Ltd. & Ors. vs. The State of Madhya Pradesh EPF RPFC and Ors. 2019 LLR 339 (SC), had not been made privy to the above categorical clarification/response to an RTI, by the Regulatory Body EPFO, Ministry of Labour & Employment, Govt. of India, New Delhi, confirming the non-deduction of PF contribution on above allowances by the Establishments. The EPFO was also a party in the said SC judgment and as such it was duty-bound to apprise the Honorable Supreme Court about its said clarification/response to an RTI. Therefore, in view of the above categorical clarification, the stand of the Regulatory Body EPFO, Ministry of Labour & Employment, Govt. of India, concerning the non-deduction of PF contribution on above-mentioned allowances, has always been very clear and unambiguous, and as such the establishments not deducting PF contribution on such allowances can't be considered as defaulters, with retrospective effect after the above SC Judgment. (ii) Circular No. C-III/110001/4/3(72)14/Circular/Hqrs/6693 dated 6.8.2014 regarding "Inspection of establishments splitting wages to reduce PF liability." In the said circular, the regulatory body CPFC, while interpreting the definition of "basic wages" as per section 2(b) of the Act, to include all emoluments which are earned by an employee while on duty but excludes the cash value of food concession, dearness allowance, HRA, overtime allowance, bonus, commission or any other similar allowance payable to the employee and any presents given by the employer to his employees, has apprehended that the employers split the total wages payable to their employees into several allowances in such a way that the said allowances are covered under the category of exclusions provided u/s 2(b) of the Act and thereby encouraging the subterfuge of splitting of wages to reduce the PF liability, up to 50% of total wages. In order to curb this, CPFC has directed for the inspection of all those establishments where PF contribution has been deducted on fifty percent or less of total wages. Thus, in the above circular, the regulatory body CPFC has itself acknowledged that deduction of PF contribution on more than 50% of the total wages is a sufficient compliance by the establishments so as to do away with the requirement of their inspection by PF authorities. In other words, the Regulatory Body CPFC has itself acknowledged that the establishments deducting PF contribution on more than 50% of the total wages of their employees are not indulging in any subterfuge of splitting of wages to reduce the PF liability. (iii) Recent Deliberations between the High-Level Committee comprising participation from the Ministry of Labour & Employment, Govt. of India and the Regulatory Body CPFC: In very recent deliberations between the Secretary, Ministry of Labour & Employment, Govt. of India & the Regulatory Body EPFO, the new definition of "wages" has been proposed by the Ministry vide its office memo bearing F.No. S-35012/10
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EPF-Circular-da ted-23-May-2011 -Splitting-of-M inimum-Wages-fo r-the-Purpose-o f-PF-Contributi on-Not.pdf