is it mandatory to deduct PF and ESI from Leave Encashment
From India, Pondicherry
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12From India, Pondicherry
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Hi,
Please have a look at the following links: [links removed].
Please give me your opinion on the matter of provident fund: The employee opts for leave encashment while in service, whether PF is deductible on the amount of leave encashment. If the employee resigns, whether PF is deductible on leave encashment payable to him when he leaves the office.
The employee opts for leave encashment while in service, whether PF is deductible on the amount of leave encashment? YES
If the employee resigns, whether PF is deductible on leave encashment payable to him when he leaves the office? YES
Provident fund contribution is payable and shall be calculated on basic wages as per Section 29(3) of the Employees' Provident Fund Scheme. The definition of basic wages is given in Section 2(b) of the Employees' Provident Fund and Miscellaneous Provisions Act, which reads as follows:
"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 an increase 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 the work done in such employment;
iii) Any present made by the employer;
The above definition of basic wages is explained by the Honorable apex court in the case of Shree Changdeo Sugar Mills v/s Union Of India reported in AIR 2001 SC 557, which says that wages include all payments payable to the employee when he was not on duty but is regarded as deemed to be on duty.
An identical question cropped up before the Honorable High Court of Karnataka in the case of Manipal Academy of Higher Education Manipal v/s Provident Fund Commissioner, Employees' Provident Fund Organization Mangalore reported in 2004 (I) CLR 425 (KAR DB) in which it is held that, "An encashment of earned leave by the employee is basic wage."
In view of the aforementioned ruling and definition, it is clear that on encashment of leave, the PF is always required to be paid. And even if the employee resigns from the service, since he is seeking benefit when he was in service of leave encashment, PF is also payable on such amount.
Regards,
Jothi
From India, Coimbatore
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Please have a look at the following links: [links removed].
Please give me your opinion on the matter of provident fund: The employee opts for leave encashment while in service, whether PF is deductible on the amount of leave encashment. If the employee resigns, whether PF is deductible on leave encashment payable to him when he leaves the office.
The employee opts for leave encashment while in service, whether PF is deductible on the amount of leave encashment? YES
If the employee resigns, whether PF is deductible on leave encashment payable to him when he leaves the office? YES
Provident fund contribution is payable and shall be calculated on basic wages as per Section 29(3) of the Employees' Provident Fund Scheme. The definition of basic wages is given in Section 2(b) of the Employees' Provident Fund and Miscellaneous Provisions Act, which reads as follows:
"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 an increase 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 the work done in such employment;
iii) Any present made by the employer;
The above definition of basic wages is explained by the Honorable apex court in the case of Shree Changdeo Sugar Mills v/s Union Of India reported in AIR 2001 SC 557, which says that wages include all payments payable to the employee when he was not on duty but is regarded as deemed to be on duty.
An identical question cropped up before the Honorable High Court of Karnataka in the case of Manipal Academy of Higher Education Manipal v/s Provident Fund Commissioner, Employees' Provident Fund Organization Mangalore reported in 2004 (I) CLR 425 (KAR DB) in which it is held that, "An encashment of earned leave by the employee is basic wage."
In view of the aforementioned ruling and definition, it is clear that on encashment of leave, the PF is always required to be paid. And even if the employee resigns from the service, since he is seeking benefit when he was in service of leave encashment, PF is also payable on such amount.
Regards,
Jothi
From India, Coimbatore
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PF Contribution on Leave Encashment Clarification
Recent Verdict
Employees' Provident Fund Organisation (Ministry of Labour, Government of India)
The dispute before the Hon'ble Supreme Court of India in Appeal (Civil) No. 1832/2004 (Manipal Academy of Higher Education versus Provident Fund Commissioner) was whether the amount received by encashing the earned leave is a part of "basic wages" under Section 2(b) of the Employees' Provident Fund and Miscellaneous Provision Act, 1952, requiring pro-rata employer's contribution.
The Hon'ble Supreme Court of India delivered the judgment on 12.03.2008 in the case and concluded that the basic wage was never intended to include amounts received for leave encashment. The appeal has been allowed by the Hon'ble Apex Court, but it has also been decided that if any payment has already been made, it can be adjusted for future liabilities, and there shall not be any refund claim since the fund is running one.
In view of the Hon'ble Supreme Court's judgment dated 12.03.2008 in Appeal (Civil) No. 1832/2004, this is to convey that it is decided (a) to discontinue PF deduction on leave encashment with immediate effect and (b) where PF contribution of the employers' share has been received in the offices EPFO, the same shall be adjusted against future liabilities.
Sd/ K C J P Narayanan, Regional PF Commissioner
From India, Delhi
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Recent Verdict
Employees' Provident Fund Organisation (Ministry of Labour, Government of India)
The dispute before the Hon'ble Supreme Court of India in Appeal (Civil) No. 1832/2004 (Manipal Academy of Higher Education versus Provident Fund Commissioner) was whether the amount received by encashing the earned leave is a part of "basic wages" under Section 2(b) of the Employees' Provident Fund and Miscellaneous Provision Act, 1952, requiring pro-rata employer's contribution.
The Hon'ble Supreme Court of India delivered the judgment on 12.03.2008 in the case and concluded that the basic wage was never intended to include amounts received for leave encashment. The appeal has been allowed by the Hon'ble Apex Court, but it has also been decided that if any payment has already been made, it can be adjusted for future liabilities, and there shall not be any refund claim since the fund is running one.
In view of the Hon'ble Supreme Court's judgment dated 12.03.2008 in Appeal (Civil) No. 1832/2004, this is to convey that it is decided (a) to discontinue PF deduction on leave encashment with immediate effect and (b) where PF contribution of the employers' share has been received in the offices EPFO, the same shall be adjusted against future liabilities.
Sd/ K C J P Narayanan, Regional PF Commissioner
From India, Delhi
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NO PF Contribution on Leave Encashment - SC judgment-Clarif ication by EPFO.pdf
Case - PF on leave encashment.doc