Apex Court's Verdict on Special Allowances and Basic Wages
The Apex Court has announced a common verdict in five different appeals having a common question. These cases are: a) RPFC, West Bengal Vs. Vivekananda Vidyamandir, b) Surya Roshni Ltd. Vs. EPFO, c) U-Flex Ltd. Vs. EPFO, d) Montage Enterprise Pvt. Ltd. Vs. EPFO, and e) The management of Saint Gobain Glass Ltd. Vs. RPFC.
The question examined was: "Whether special allowances paid by an establishment to its employees would fall within the expression 'basic wages' under Section 2(b)(ii) read with Section 6 of the Act for computation of deduction towards Provident Fund."
From India, Mumbai
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305The Apex Court has announced a common verdict in five different appeals having a common question. These cases are: a) RPFC, West Bengal Vs. Vivekananda Vidyamandir, b) Surya Roshni Ltd. Vs. EPFO, c) U-Flex Ltd. Vs. EPFO, d) Montage Enterprise Pvt. Ltd. Vs. EPFO, and e) The management of Saint Gobain Glass Ltd. Vs. RPFC.
The question examined was: "Whether special allowances paid by an establishment to its employees would fall within the expression 'basic wages' under Section 2(b)(ii) read with Section 6 of the Act for computation of deduction towards Provident Fund."
From India, Mumbai
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The analysis is precise and clear. Thanks, Mr. Shailesh Parikh, for sharing it. The other implications can be:
1) The take-home pay of the employees may decrease since they have to pay contributions on other allowances that are uniformly paid to all. However, this is beneficial in the long run at the time of retirement, as it provides more financial cushion. The additional contribution on these allowances also attracts interest.
2) It may not impose much extra load on the employer, as he can limit his contribution to Rs. 15,000/-, which is the wage cap if he so chooses.
3) International workers might have to pay more by way of contribution due to the inclusion of other allowances, and there is no wage limit in their case.
These are only observations, and others are welcome to provide further insights.
B. Saikumar
HR & Labour Relations Adviser
From India, Mumbai
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1) The take-home pay of the employees may decrease since they have to pay contributions on other allowances that are uniformly paid to all. However, this is beneficial in the long run at the time of retirement, as it provides more financial cushion. The additional contribution on these allowances also attracts interest.
2) It may not impose much extra load on the employer, as he can limit his contribution to Rs. 15,000/-, which is the wage cap if he so chooses.
3) International workers might have to pay more by way of contribution due to the inclusion of other allowances, and there is no wage limit in their case.
These are only observations, and others are welcome to provide further insights.
B. Saikumar
HR & Labour Relations Adviser
From India, Mumbai
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Hi all, thanks for sharing your views. I have one query on the same. This is a judgment and not a notification or circular with an effective date. That means it is effective from the day the act was applicable and henceforth from the date of establishment registration in EPF. My query is:
Will the EPFO department go back and demand that the establishment should pay the difference of EPF from that date until today?
1. If yes, in what section of the Act?
2. What would be the remedy for this?
Thanks in advance.
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Will the EPFO department go back and demand that the establishment should pay the difference of EPF from that date until today?
1. If yes, in what section of the Act?
2. What would be the remedy for this?
Thanks in advance.
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(Fact Checked)-The EPFO can request the establishment to pay the difference in EPF contributions from the date of establishment registration. Section 14B of the EPF Act allows for this. Remedies include paying the arrears. (1 Acknowledge point)
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Hi Aniket,
EPFO Department's Potential Actions
1. Will the EPFO department go back and say the establishment should pay the difference of EPF from that date until today? This judgment is in an appeal filed by revel parties - RPFC/employers. This implies there was a dispute, short contribution by employers, and RPFC pointed out a violation and demand for the difference together with interest, a contention that has been upheld by this judgment. Therefore, I think there is a possibility of an additional burden on employers.
Applicable Section of the Act
2. If yes, in what section of the Act? The applicable section, as noted in the judgment, has been clarified, and coverage amplified.
Possible Remedies
3. What shall be the remedy to this? I don't think there is a possibility to avoid it. However, review petitions may be possible, but there are remote chances of reversing the judgment itself. Maybe a plea to make the amplified definition be implemented from the date of judgment could receive due consideration by the apex court.
From India, Bangalore
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EPFO Department's Potential Actions
1. Will the EPFO department go back and say the establishment should pay the difference of EPF from that date until today? This judgment is in an appeal filed by revel parties - RPFC/employers. This implies there was a dispute, short contribution by employers, and RPFC pointed out a violation and demand for the difference together with interest, a contention that has been upheld by this judgment. Therefore, I think there is a possibility of an additional burden on employers.
Applicable Section of the Act
2. If yes, in what section of the Act? The applicable section, as noted in the judgment, has been clarified, and coverage amplified.
Possible Remedies
3. What shall be the remedy to this? I don't think there is a possibility to avoid it. However, review petitions may be possible, but there are remote chances of reversing the judgment itself. Maybe a plea to make the amplified definition be implemented from the date of judgment could receive due consideration by the apex court.
From India, Bangalore
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(Fact Checked)-The user's reply contains accurate information regarding the implications of the judgment and the potential additional burden on employers. The mention of review petitions and the possibility of implementing the amplified definition from the date of judgment is also valid. (1 Acknowledge point)
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(Fact Checked)-The user's reply contains correct information and insights regarding the implications of the Supreme Court judgment on EPF contributions. Well-analyzed response. (1 Acknowledge point)
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Dear experts, I am puzzled by the EPF directive that includes Other Allowance as part of EPFO contributions. This change will significantly reduce the take-home pay. However, the new law does not address PF contributions for employees earning above Rs 15,000 per month in basic wages.
My queries are:
1) If a company, with the employee's consent, decides to cap the basic salary at Rs 15,000 and the monthly PF contribution at Rs 1,800, would this action violate the law?
2) What is the process for informing EPFO about restructuring salary contributions to EPF? Many employees wish to limit their contributions to the statutory maximum.
3) I also seek the experts' opinion on the government's rationale for this change, especially considering that the tax deduction under section 80C has not been increased. This means the employee's take-home pay will decrease as they contribute more to EPF and pay taxes on the same amount.
4) I need clarification on whether EPF contributions are limited to "allowances" and do not cover reimbursements or amounts paid to employees for expenses. There have been inquiries on this matter causing confusion.
Please assist me with these questions.
Regards, Anuradha Grewal
From India, Mumbai
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My queries are:
1) If a company, with the employee's consent, decides to cap the basic salary at Rs 15,000 and the monthly PF contribution at Rs 1,800, would this action violate the law?
2) What is the process for informing EPFO about restructuring salary contributions to EPF? Many employees wish to limit their contributions to the statutory maximum.
3) I also seek the experts' opinion on the government's rationale for this change, especially considering that the tax deduction under section 80C has not been increased. This means the employee's take-home pay will decrease as they contribute more to EPF and pay taxes on the same amount.
4) I need clarification on whether EPF contributions are limited to "allowances" and do not cover reimbursements or amounts paid to employees for expenses. There have been inquiries on this matter causing confusion.
Please assist me with these questions.
Regards, Anuradha Grewal
From India, Mumbai
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(Fact Checked)-The Employee Provident Fund Organization (EPFO) directive includes special allowances in PF calculation. Capping employee PF contribution at Rs 15,000 and restructuring salary must comply with the law. EPF contributions are not limited to 'allowances' only. (1 Acknowledge point)
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Friends, PFA analysis of PWC on the Supreme Court ruling. Thanks
From India, Malappuram
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From India, Malappuram
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Hi Anuradha, please consider my views on your queries:
"This will greatly reduce the take-home. However, the new law is silent on the fact for PF contributions of employees beyond the limit of Basic Wages above Rs 15,000 per month."
Query 1: Capping Basic Salary and PF Contribution
If the company, with the willful agreement of the employee, agrees to cap the basic salary of an employee at Rs 15,000 and the monthly PF contribution at Rs 1,800, will that be a contravention of the law?
As per existing provisions of the law, an employer has the option to cap the contribution up to the statutory limit of Rs 15,000. The impact of the SC judgment is focused only on the inclusion of special and other allowances for the purposes of computation of EPF matching contribution of employers. It cannot be construed as enhancing the statutory limit of Rs 15,000, which was not touched. However, the law prohibits tinkering with the salary structure with a motive to reduce or avoid the employer's contribution.
Query 2: Informing EPFO of Salary Restructuring
What is the procedure for informing EPFO of restructuring the salary contribution to EPF, i.e., a lot of employees want their contribution to be capped to the statutory limit?
There is no provision to keep EPFO posted with information on changes in emoluments of employees, as if seeking their approval. Changes in emoluments are governed by the bilateral terms and conditions. There are no provisions in the law stipulating the quantum of basic or allowances. As long as statutory minimum wages are adhered to, there is no worry. However, capping employers' contributions up to the statutory limit is possible.
Query 3: Government's Logic Behind the Move
I would seek the opinion of experts on the logic of the government to initiate such a move, as the tax contribution under Section 80C has not been increased. Thus, what the employee will get is a reduced in-hand pay as they will contribute a higher amount into EPF and at the same time pay tax on the same, thus reducing their take-home pay.
It’s misunderstood as if the government has introduced a new provision now; it’s not so. RPFC raised violations with respect to the non-inclusion of these allowances for employers’ contributions, which interpretation was challenged in this case. The SC upheld the contention of the RPFC and amplified the coverage of allowance for these purposes. We shouldn’t see the impact as if every employer is going to be burdened in a big way. In fact, many states’ minimum wages for different categories have already reached around the statutory limit. So the impact, in my opinion, will be marginal wherever the wages/salary levels are below Rs 15,000. Of course, relief under Section 80C of the IT Act has not been increased for the last few years. However, a standard deduction of Rs 40,000 and Rs 50,000 (from 2019-20) without linking to 80C has been (re-)introduced, which is somewhat a relief to those on the borderline.
Query 4: EPF Contribution on Allowances vs. Reimbursements
I also need to understand if the EPF contribution is only restricted to the word "allowance" and not reimbursement or amounts paid to employees against bills.
The contention of the impugned case addresses such allowances discussed in the judgment. Let us not stretch it beyond what has been listed therein. Reimbursements like LTA/medical expenses against bills as per their HR policy, which are infrequent (not on a regular basis like monthly allowances), are not to be considered as allowances for EPF. (Please mind the limits stipulated for the purposes of IT.)
I am very confused on this fact as there are queries coming on the same.
Queries naturally should arise everywhere. I don’t see anything which cannot be questioned and free from confusion. In saying so, if we don’t interpret differently, much confusion can be avoided.
From India, Bangalore
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"This will greatly reduce the take-home. However, the new law is silent on the fact for PF contributions of employees beyond the limit of Basic Wages above Rs 15,000 per month."
Query 1: Capping Basic Salary and PF Contribution
If the company, with the willful agreement of the employee, agrees to cap the basic salary of an employee at Rs 15,000 and the monthly PF contribution at Rs 1,800, will that be a contravention of the law?
As per existing provisions of the law, an employer has the option to cap the contribution up to the statutory limit of Rs 15,000. The impact of the SC judgment is focused only on the inclusion of special and other allowances for the purposes of computation of EPF matching contribution of employers. It cannot be construed as enhancing the statutory limit of Rs 15,000, which was not touched. However, the law prohibits tinkering with the salary structure with a motive to reduce or avoid the employer's contribution.
Query 2: Informing EPFO of Salary Restructuring
What is the procedure for informing EPFO of restructuring the salary contribution to EPF, i.e., a lot of employees want their contribution to be capped to the statutory limit?
There is no provision to keep EPFO posted with information on changes in emoluments of employees, as if seeking their approval. Changes in emoluments are governed by the bilateral terms and conditions. There are no provisions in the law stipulating the quantum of basic or allowances. As long as statutory minimum wages are adhered to, there is no worry. However, capping employers' contributions up to the statutory limit is possible.
Query 3: Government's Logic Behind the Move
I would seek the opinion of experts on the logic of the government to initiate such a move, as the tax contribution under Section 80C has not been increased. Thus, what the employee will get is a reduced in-hand pay as they will contribute a higher amount into EPF and at the same time pay tax on the same, thus reducing their take-home pay.
It’s misunderstood as if the government has introduced a new provision now; it’s not so. RPFC raised violations with respect to the non-inclusion of these allowances for employers’ contributions, which interpretation was challenged in this case. The SC upheld the contention of the RPFC and amplified the coverage of allowance for these purposes. We shouldn’t see the impact as if every employer is going to be burdened in a big way. In fact, many states’ minimum wages for different categories have already reached around the statutory limit. So the impact, in my opinion, will be marginal wherever the wages/salary levels are below Rs 15,000. Of course, relief under Section 80C of the IT Act has not been increased for the last few years. However, a standard deduction of Rs 40,000 and Rs 50,000 (from 2019-20) without linking to 80C has been (re-)introduced, which is somewhat a relief to those on the borderline.
Query 4: EPF Contribution on Allowances vs. Reimbursements
I also need to understand if the EPF contribution is only restricted to the word "allowance" and not reimbursement or amounts paid to employees against bills.
The contention of the impugned case addresses such allowances discussed in the judgment. Let us not stretch it beyond what has been listed therein. Reimbursements like LTA/medical expenses against bills as per their HR policy, which are infrequent (not on a regular basis like monthly allowances), are not to be considered as allowances for EPF. (Please mind the limits stipulated for the purposes of IT.)
I am very confused on this fact as there are queries coming on the same.
Queries naturally should arise everywhere. I don’t see anything which cannot be questioned and free from confusion. In saying so, if we don’t interpret differently, much confusion can be avoided.
From India, Bangalore
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(Fact Checked)-The user's reply contains accurate information regarding the impact of the Supreme Court judgment on EPF contributions and the treatment of allowances. The explanations provided align with the legal provisions and interpretations. (1 Acknowledge point)
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Dear Mr. Kumar,
Thank you for your elaborate answer. As mentioned earlier, I sought your expert opinion on fixing the EPF contribution at a Basic Wage of Rs. 15,000 per month. My only question is, if we change our EPF contribution after the Supreme Court order, will the regional EPFO under whose jurisdiction my organization falls object to such modification? If so, how do we resolve this problem?
Retrospective EPF Contribution
Also, if retrospective EPF contribution is to be paid, what is the period to be considered? For example, if employee A had PF deducted on salary and not on Special Allowance, but after the SC order, we are obliged to pay the PF retrospectively. Now, under the said judgment, retrospective corresponds to what period, as the employee may have been working with us for the last 10 years.
Please advise, as there are more questions than answers available.
Thanking you,
Warm Regards,
Anuradha
From India, Mumbai
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Thank you for your elaborate answer. As mentioned earlier, I sought your expert opinion on fixing the EPF contribution at a Basic Wage of Rs. 15,000 per month. My only question is, if we change our EPF contribution after the Supreme Court order, will the regional EPFO under whose jurisdiction my organization falls object to such modification? If so, how do we resolve this problem?
Retrospective EPF Contribution
Also, if retrospective EPF contribution is to be paid, what is the period to be considered? For example, if employee A had PF deducted on salary and not on Special Allowance, but after the SC order, we are obliged to pay the PF retrospectively. Now, under the said judgment, retrospective corresponds to what period, as the employee may have been working with us for the last 10 years.
Please advise, as there are more questions than answers available.
Thanking you,
Warm Regards,
Anuradha
From India, Mumbai
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(Fact Checked)-The EPFO cannot object to changing EPF contributions post the SC order. Retrospective PF payments should consider the entire tenure. Thank you for seeking clarification. (1 Acknowledge point)
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Supreme Court Judgment on EPF Contribution
Hello Anuradha, please go through the extract from the Supreme Court judgment before addressing your query:
"We have considered the submissions on behalf of the parties. To consider the common question of law, it will be necessary to set out the relevant provisions of the Act for purposes of the present controversy.
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."
"Applying the aforesaid tests to the facts of the present appeals, no material has been placed by the establishments to demonstrate that the allowances in question being paid to its employees were either variable or were linked to any incentive for production resulting in greater output by an employee and that the allowances in question were not paid across the board to all employees in a particular category or were being paid especially to those who avail the opportunity. In order that the amount goes beyond the basic wages, it has to be shown that the workman concerned had become eligible to get this extra amount beyond the normal work which he was otherwise required to put in. There is no data available on record to show what were the norms of work prescribed for those workmen during the relevant period. It is therefore not possible to ascertain whether extra amounts paid to the workmen were in fact paid for the extra work which had exceeded the normal output prescribed for the workmen. The wage structure and the components of salary have been examined on facts, both by the authority and the appellate authority under the Act, who have arrived at a factual conclusion that the allowances in question were essentially a part of the basic wage camouflaged as part of an allowance so as to avoid deduction and contribution accordingly to the provident fund account of the employees. There is no occasion for us to interfere with the concurrent conclusions of facts. The appeals by the establishments therefore merit no interference. Conversely, for the same reason, the appeal preferred by the Regional Provident Fund Commissioner deserves to be allowed."
Your Query on EPF Contribution
As mentioned earlier, I sought your expert opinion on fixing the EPF contribution at a Basic Wage of Rs. 15,000 per month. My only question is, if we change our EPF contribution after the Supreme Court order, will the regional EPFO under whose jurisdiction my organization falls object to such modification? If so, how do we resolve this problem?
I'm not clear, do you mean to say you have a consolidated salary/wage of Rs. 15,000 per month which you now try to bifurcate into various allowances (which are discussed in the Supreme Court judgment)? Am I correct? If so, bifurcation is okay as long as you don't do it with a view to escape from the contribution by coining some new allowances which are not mentioned in the Supreme Court judgment. Such attempts will only create problems for you. Neither the RPFC is going to approve nor disapprove your proposal as they have no such role to play.
Retrospective EPF Contribution
Also, if retrospective EPF contribution is to be paid, what is the period to be considered? For example, if employee A had PF being deducted on salary and not on Special Allowance but after the Supreme Court order we are obliged to pay the PF retrospectively, now under the said judgment, retrospective corresponds to what period as the employee may have been working with us for the last 10 years?
I cannot conclusively say Yes or No on the necessity to apply the Supreme Court judgment in the right spirit from a retrospective date. One may tend to take a narrow view saying the judgment is passed against appeals in specific cases cited therein and therefore others may relax. Then here the catch is, this being the judgment of the apex court, it applies everywhere all over the country. I have no doubt all the RPFCs all over India will now quote this judgment and raise demands and therefore the demand is going to be retrospective, which nobody could rule out. Therefore, I have no answer if you ask me, from which date? Anybody's guess. I'm sorry I don't want to mislead on this aspect. But please be prepared for anything.
From India, Bangalore
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Hello Anuradha, please go through the extract from the Supreme Court judgment before addressing your query:
"We have considered the submissions on behalf of the parties. To consider the common question of law, it will be necessary to set out the relevant provisions of the Act for purposes of the present controversy.
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."
"Applying the aforesaid tests to the facts of the present appeals, no material has been placed by the establishments to demonstrate that the allowances in question being paid to its employees were either variable or were linked to any incentive for production resulting in greater output by an employee and that the allowances in question were not paid across the board to all employees in a particular category or were being paid especially to those who avail the opportunity. In order that the amount goes beyond the basic wages, it has to be shown that the workman concerned had become eligible to get this extra amount beyond the normal work which he was otherwise required to put in. There is no data available on record to show what were the norms of work prescribed for those workmen during the relevant period. It is therefore not possible to ascertain whether extra amounts paid to the workmen were in fact paid for the extra work which had exceeded the normal output prescribed for the workmen. The wage structure and the components of salary have been examined on facts, both by the authority and the appellate authority under the Act, who have arrived at a factual conclusion that the allowances in question were essentially a part of the basic wage camouflaged as part of an allowance so as to avoid deduction and contribution accordingly to the provident fund account of the employees. There is no occasion for us to interfere with the concurrent conclusions of facts. The appeals by the establishments therefore merit no interference. Conversely, for the same reason, the appeal preferred by the Regional Provident Fund Commissioner deserves to be allowed."
Your Query on EPF Contribution
As mentioned earlier, I sought your expert opinion on fixing the EPF contribution at a Basic Wage of Rs. 15,000 per month. My only question is, if we change our EPF contribution after the Supreme Court order, will the regional EPFO under whose jurisdiction my organization falls object to such modification? If so, how do we resolve this problem?
I'm not clear, do you mean to say you have a consolidated salary/wage of Rs. 15,000 per month which you now try to bifurcate into various allowances (which are discussed in the Supreme Court judgment)? Am I correct? If so, bifurcation is okay as long as you don't do it with a view to escape from the contribution by coining some new allowances which are not mentioned in the Supreme Court judgment. Such attempts will only create problems for you. Neither the RPFC is going to approve nor disapprove your proposal as they have no such role to play.
Retrospective EPF Contribution
Also, if retrospective EPF contribution is to be paid, what is the period to be considered? For example, if employee A had PF being deducted on salary and not on Special Allowance but after the Supreme Court order we are obliged to pay the PF retrospectively, now under the said judgment, retrospective corresponds to what period as the employee may have been working with us for the last 10 years?
I cannot conclusively say Yes or No on the necessity to apply the Supreme Court judgment in the right spirit from a retrospective date. One may tend to take a narrow view saying the judgment is passed against appeals in specific cases cited therein and therefore others may relax. Then here the catch is, this being the judgment of the apex court, it applies everywhere all over the country. I have no doubt all the RPFCs all over India will now quote this judgment and raise demands and therefore the demand is going to be retrospective, which nobody could rule out. Therefore, I have no answer if you ask me, from which date? Anybody's guess. I'm sorry I don't want to mislead on this aspect. But please be prepared for anything.
From India, Bangalore
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(Fact Checked)-The user reply provides an accurate summary of the Supreme Court judgment regarding the computation of Provident Fund deduction based on special allowances. The response correctly highlights the key points and implications of the judgment. (1 Acknowledge point)
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Dear Mr. Kumar, many thanks for your elaborate response. I have found a new judgment that may help with what I am trying to endeavor. Attached is the Supreme Court judgment regarding no restriction on the reduction of EPF contribution by the employer, even though previously the contribution was above the statutory limit.
My questions are as follows:
1) Now, in light of this 2011 judgment, can I reduce the EPF contribution of both the employer and employee to Rs 15,000 even though previously my contribution was above the statutory limit?
2) Kindly let me know if you are aware of any judgment that contradicts the one attached.
I am eagerly awaiting your elaborate response, which acts as a guiding light to many.
Regards, Anuradha Grewal
From India, Mumbai
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My questions are as follows:
1) Now, in light of this 2011 judgment, can I reduce the EPF contribution of both the employer and employee to Rs 15,000 even though previously my contribution was above the statutory limit?
2) Kindly let me know if you are aware of any judgment that contradicts the one attached.
I am eagerly awaiting your elaborate response, which acts as a guiding light to many.
Regards, Anuradha Grewal
From India, Mumbai
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Hi Anuradha, as you know, EPF contribution is directly relevant to 'salary/wages' for those drawing up to Rs. 15,000 only. I think there is no impediment to administering contribution as 'voluntary' in respect of those drawing above Rs. 15,000. By virtue of this decision, if the basic wages for PF purposes exceed INR 15,000 per month, are the employers required to contribute on this higher amount? This decision has not dealt with this aspect.
Interestingly, in another Supreme Court decision in the case of Marathwada Gramin Bank, it was held that employers cannot be compelled to contribute beyond their statutory liability. PF authorities did not file the review petition in that case and issued instructions to their field officers in May 2014 that they should not force employers to contribute over and above the statutory wage ceiling (i.e., Rs. 15,000 per month).
In view of this, employers still have the option to contribute PF on the statutory wage ceiling of Rs. 15,000 per month (statutory obligation) unless they voluntarily agree to contribute PF on wages higher than Rs. 15,000 per month. If PF authorities wish employers to contribute on the higher basic wages, they will need to withdraw their previous instructions, but these can then be applied prospectively only.
Nevertheless, in view of the Marathwada Gramin Bank ruling, the issue may still get challenged in a court of law. For foreign nationals qualifying to be International Workers, the situation is not the same, as the wage ceiling of Rs. 15,000 per month is not applicable to them, and they are required to contribute PF on the total wage amount even beyond Rs. 15,000 as per the law stipulated.
From India, Bangalore
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Interestingly, in another Supreme Court decision in the case of Marathwada Gramin Bank, it was held that employers cannot be compelled to contribute beyond their statutory liability. PF authorities did not file the review petition in that case and issued instructions to their field officers in May 2014 that they should not force employers to contribute over and above the statutory wage ceiling (i.e., Rs. 15,000 per month).
In view of this, employers still have the option to contribute PF on the statutory wage ceiling of Rs. 15,000 per month (statutory obligation) unless they voluntarily agree to contribute PF on wages higher than Rs. 15,000 per month. If PF authorities wish employers to contribute on the higher basic wages, they will need to withdraw their previous instructions, but these can then be applied prospectively only.
Nevertheless, in view of the Marathwada Gramin Bank ruling, the issue may still get challenged in a court of law. For foreign nationals qualifying to be International Workers, the situation is not the same, as the wage ceiling of Rs. 15,000 per month is not applicable to them, and they are required to contribute PF on the total wage amount even beyond Rs. 15,000 as per the law stipulated.
From India, Bangalore
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(Fact Checked)-The user reply contains accurate information regarding the EPF contribution and the implications of the Supreme Court decision on the definition of "basic wages" for PF purposes. The reference to the Marathwada Gramin Bank case and the treatment of foreign nationals is also relevant. (1 Acknowledge point)
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(Fact Checked)-The user's reply contains accurate information regarding the EPF contribution and the statutory wage ceiling of Rs. 15,000 per month. The details provided align with the relevant laws and the Supreme Court judgment mentioned. (1 Acknowledge point)
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Dear All, Additional Central PF Commissioner HQ Legal has issued circular while defending similar cases and taking necessary action keeping aforementioned judgement of Apex Court. Regards,
From India, Mumbai
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From India, Mumbai
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(Fact Checked)-[The circular issued by the Additional Central PF Commissioner HQ Legal is in alignment with the recent judgment of the Apex Court in the mentioned cases regarding the computation of deduction towards Provident Fund based on special allowances. Well done!] (1 Acknowledge point)
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Hello Anuradha,
The attached Circular is regard to :-
The appeals raise a common question of law, if the special allowances paid by an establishment to its employees would fall within the expression “basic wages” under Section 2(b)(ii) read with Section 6 of the Act for computation of deduction towards Provident Fund
Regards
From India, Mumbai
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The attached Circular is regard to :-
The appeals raise a common question of law, if the special allowances paid by an establishment to its employees would fall within the expression “basic wages” under Section 2(b)(ii) read with Section 6 of the Act for computation of deduction towards Provident Fund
Regards
From India, Mumbai
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Supreme Court Verdict on PF Contribution
Please find the attached interpretation and impact on PF Contribution following the Supreme Court's verdict by the Bench of Justices Arun Mishra and Naveen Sinha. Essentially, it means that the PF contribution will be on the total amount, including all the allowances paid to an employee, not just on the basic salary. The Supreme Court ruled that 'special allowance' must be included in basic pay for the calculation of provident fund (PF) deduction from employees and the company.
A bench of Justices Arun Mishra and Naveen Sinha dismissed appeals filed by many companies questioning the Provident Fund Commissioner's decision to club basic pay with special allowances/other allowances for the purpose of deduction of PF and matching contribution by employers.
Crux and Key Pointers
1. PF ceiling of ₹15,000/- per month remains the same; it has not been revised.
2. If the minimum PF contribution as per the ceiling is paid, i.e., ₹1,800/- per month from both employee and employer, then there is no need to change.
3. If the contribution is less than ₹1,800 and if the gross is more or up to ₹15,000/- per month, where the basic is less than ₹15,000 and the remaining amount is bifurcated among different heads, then excluding HRA and statutory bonus, all other heads are to be considered with basic for framing PF wages up to ₹15,000/- or on the total of all heads if the total is less than ₹15,000/-.
4. There is no new provision; it is an interpretation of the existing section/term. Hence, the date of implication is not expected; it is an ongoing rule.
5. PF authority may have recourse to the verdict of the Supreme Court while conducting inspections and computation of liability up to the wage ceiling as defined under the law.
Regards,
Compliance First
From India, Pune
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Please find the attached interpretation and impact on PF Contribution following the Supreme Court's verdict by the Bench of Justices Arun Mishra and Naveen Sinha. Essentially, it means that the PF contribution will be on the total amount, including all the allowances paid to an employee, not just on the basic salary. The Supreme Court ruled that 'special allowance' must be included in basic pay for the calculation of provident fund (PF) deduction from employees and the company.
A bench of Justices Arun Mishra and Naveen Sinha dismissed appeals filed by many companies questioning the Provident Fund Commissioner's decision to club basic pay with special allowances/other allowances for the purpose of deduction of PF and matching contribution by employers.
Crux and Key Pointers
1. PF ceiling of ₹15,000/- per month remains the same; it has not been revised.
2. If the minimum PF contribution as per the ceiling is paid, i.e., ₹1,800/- per month from both employee and employer, then there is no need to change.
3. If the contribution is less than ₹1,800 and if the gross is more or up to ₹15,000/- per month, where the basic is less than ₹15,000 and the remaining amount is bifurcated among different heads, then excluding HRA and statutory bonus, all other heads are to be considered with basic for framing PF wages up to ₹15,000/- or on the total of all heads if the total is less than ₹15,000/-.
4. There is no new provision; it is an interpretation of the existing section/term. Hence, the date of implication is not expected; it is an ongoing rule.
5. PF authority may have recourse to the verdict of the Supreme Court while conducting inspections and computation of liability up to the wage ceiling as defined under the law.
Regards,
Compliance First
From India, Pune
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(Fact Checked)-The user's reply is mostly correct in summarizing the Supreme Court verdict on PF contributions. The key points provided align with the court's decision in including special allowances in basic pay for PF calculation. (1 Acknowledge point)
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(Fact Checked)-The user reply is correct based on the recent Supreme Court verdict regarding the inclusion of special allowances in basic pay for PF calculation. (1 Acknowledge point)
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Dear Shailesh Parikh / Anuradha / Sai Consultant / Kumar / PCA
Without prejudice, from my perspective, the Apex Court has unfortunately lost a golden opportunity to set right the confusion caused by various High Court judgments and orders of the provident fund commissioners by the Hon'ble Supreme Court. The Supreme Court did not decide any legal issue. The position of law remains as it was before the judgment. All that the learned judges have done is to reproduce the definition of "basic wages" and Section 6 of the EPF Act and some relevant paragraphs from three earlier judgments of the court.
The argument of the department, advanced through the Additional Solicitor General, was limited to the question of whether a special allowance falls within the definition of basic wage, though the appeals by the management were in respect of travel allowance, canteen allowance, management allowance, conveyance allowance, education allowance, food concession, medical allowance, night shift incentive, and city compensatory allowance being wrongly treated as 'basic wages' on which contribution was demanded and the demand being upheld by the high courts.
The submissions of the counsels who appeared for the management in connected petitions were that the basic wages defined under Section 2(b) contain exceptions and will not include what would ordinarily not be earned in accordance with the contract of terms of appointment. Even with regard to payments earned by the employees in terms of the contract, the basis of inclusion and exclusion is that whatever is payable in all concerns and is earned by all permanent employees is included for the purpose of contribution. But, whatever is not payable by all concerns or may not be earned by all employees of a concern is excluded for the purpose of contribution. The example of house rent allowance was taken to show that it is not paid in many concerns and sometimes in some concerns to some employees but not to others, and would therefore be excluded from basic wage; the same is the case with overtime allowance.
The learned judges referred extensively to paragraph Nos. 7 and 8 in the Bridge and Roof case and reproduced the entire paragraphs 7 and 8 of the said judgment. Thereafter, para-11 of the judgment in Muir Mills Company Limited, Kanpur Vs. Workmen AIR 1960 SC 985 has been reproduced. The judgment of the Hon'ble Supreme Court in Manipal Academy of Higher Education Vs. Provident Fund Commissioner (2008) 5 SCC 428 was referred to, and para-10 of the judgment is reproduced. At para-12 of the judgment, surprisingly, the judgment says that the term "basic wage" has not been defined under the Act. This is unfortunate because the definition of 'basic wage' under Section 2(b) has been extracted at para-8 of the judgment. Para-9 from the judgment of the Court in Kichha Sugar Company Limited Vs. Tarai Chini Mill Majdoor Union (2014) 4 SCC 37 has been reproduced. The court in the said case had gone into the dictionary meaning of 'basic wage'. In fact, all this was not necessary as basic wage is defined under the Act right from its inception.
The judgment refers to The Daily Partap case only to say that the Act is a piece of beneficial social welfare legislation. The Court in para-14, which is the only paragraph where the learned judges could be said to have analyzed the case, refers only to the fact that employer-petitioners before it were not able to show that the allowances paid were not paid across the board to all the employees in a particular category. According to the Court, in order to contend that the payment goes beyond the basic wages, it has to be shown that the workmen became eligible for extra amounts beyond normal work. No law has been laid down in the judgment. The learned judges only say that the facts have been examined by the appellate authority and a factual conclusion is arrived at. Beyond this, the judgment does not give any insight into the scope of the definition of 'basic wage'. This leaves us where we started, and that is, confusion still prevails.
In fact, the issue before the court was whether conveyance allowance, education allowance, food concession, medical allowance, special holidays, night shift incentive, and city compensatory allowance constitute part of basic wages. No discussions have taken place on these issues, and nothing has been said as to whether any of these components of wage should be treated as 'basic wage' or otherwise. Effectively, what the earlier judgments have said is that if a component of wage is paid to all the employees across the board, it would fall within the definition of basic wage, except those that are expressly excluded like, for example, house rent allowance. The Hon'ble Supreme Court in none of the earlier judgments nor in the present judgment considered the scope of the words "or any other similar allowance payable to the employee in respect of his employment or of work done in such employment" under Section 2(b)(ii).
While the dearness allowance, which is excluded in Section 2(b)(ii), has been included in Section 6, similar inclusion is not found in respect of other allowances. This should be taken as having been done deliberately by the Parliament to see that other allowances such as conveyance allowance, uniform allowance, washing allowance, overtime allowance, bonus & commission do not fall within the definition of basic wages. The Hon'ble Supreme Court is neither prepared to say this nor consider arguments on these lines. Maybe, the matter will have to be taken again to the Hon'ble Apex Court for a clear verdict on the scope of the words "or any other similar allowance payable to the employee in respect of his employment or of work done in such employment" under Section 2(b)(ii) of the EPF Act, 1952.
Last but not least, the SC Judgment in Airfreight Ltd. vs State Of Karnataka & Ors., decided on 4 August 1999, has not been brought to the notice of the judges.
Regards,
From India, Andheri
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Without prejudice, from my perspective, the Apex Court has unfortunately lost a golden opportunity to set right the confusion caused by various High Court judgments and orders of the provident fund commissioners by the Hon'ble Supreme Court. The Supreme Court did not decide any legal issue. The position of law remains as it was before the judgment. All that the learned judges have done is to reproduce the definition of "basic wages" and Section 6 of the EPF Act and some relevant paragraphs from three earlier judgments of the court.
The argument of the department, advanced through the Additional Solicitor General, was limited to the question of whether a special allowance falls within the definition of basic wage, though the appeals by the management were in respect of travel allowance, canteen allowance, management allowance, conveyance allowance, education allowance, food concession, medical allowance, night shift incentive, and city compensatory allowance being wrongly treated as 'basic wages' on which contribution was demanded and the demand being upheld by the high courts.
The submissions of the counsels who appeared for the management in connected petitions were that the basic wages defined under Section 2(b) contain exceptions and will not include what would ordinarily not be earned in accordance with the contract of terms of appointment. Even with regard to payments earned by the employees in terms of the contract, the basis of inclusion and exclusion is that whatever is payable in all concerns and is earned by all permanent employees is included for the purpose of contribution. But, whatever is not payable by all concerns or may not be earned by all employees of a concern is excluded for the purpose of contribution. The example of house rent allowance was taken to show that it is not paid in many concerns and sometimes in some concerns to some employees but not to others, and would therefore be excluded from basic wage; the same is the case with overtime allowance.
The learned judges referred extensively to paragraph Nos. 7 and 8 in the Bridge and Roof case and reproduced the entire paragraphs 7 and 8 of the said judgment. Thereafter, para-11 of the judgment in Muir Mills Company Limited, Kanpur Vs. Workmen AIR 1960 SC 985 has been reproduced. The judgment of the Hon'ble Supreme Court in Manipal Academy of Higher Education Vs. Provident Fund Commissioner (2008) 5 SCC 428 was referred to, and para-10 of the judgment is reproduced. At para-12 of the judgment, surprisingly, the judgment says that the term "basic wage" has not been defined under the Act. This is unfortunate because the definition of 'basic wage' under Section 2(b) has been extracted at para-8 of the judgment. Para-9 from the judgment of the Court in Kichha Sugar Company Limited Vs. Tarai Chini Mill Majdoor Union (2014) 4 SCC 37 has been reproduced. The court in the said case had gone into the dictionary meaning of 'basic wage'. In fact, all this was not necessary as basic wage is defined under the Act right from its inception.
The judgment refers to The Daily Partap case only to say that the Act is a piece of beneficial social welfare legislation. The Court in para-14, which is the only paragraph where the learned judges could be said to have analyzed the case, refers only to the fact that employer-petitioners before it were not able to show that the allowances paid were not paid across the board to all the employees in a particular category. According to the Court, in order to contend that the payment goes beyond the basic wages, it has to be shown that the workmen became eligible for extra amounts beyond normal work. No law has been laid down in the judgment. The learned judges only say that the facts have been examined by the appellate authority and a factual conclusion is arrived at. Beyond this, the judgment does not give any insight into the scope of the definition of 'basic wage'. This leaves us where we started, and that is, confusion still prevails.
In fact, the issue before the court was whether conveyance allowance, education allowance, food concession, medical allowance, special holidays, night shift incentive, and city compensatory allowance constitute part of basic wages. No discussions have taken place on these issues, and nothing has been said as to whether any of these components of wage should be treated as 'basic wage' or otherwise. Effectively, what the earlier judgments have said is that if a component of wage is paid to all the employees across the board, it would fall within the definition of basic wage, except those that are expressly excluded like, for example, house rent allowance. The Hon'ble Supreme Court in none of the earlier judgments nor in the present judgment considered the scope of the words "or any other similar allowance payable to the employee in respect of his employment or of work done in such employment" under Section 2(b)(ii).
While the dearness allowance, which is excluded in Section 2(b)(ii), has been included in Section 6, similar inclusion is not found in respect of other allowances. This should be taken as having been done deliberately by the Parliament to see that other allowances such as conveyance allowance, uniform allowance, washing allowance, overtime allowance, bonus & commission do not fall within the definition of basic wages. The Hon'ble Supreme Court is neither prepared to say this nor consider arguments on these lines. Maybe, the matter will have to be taken again to the Hon'ble Apex Court for a clear verdict on the scope of the words "or any other similar allowance payable to the employee in respect of his employment or of work done in such employment" under Section 2(b)(ii) of the EPF Act, 1952.
Last but not least, the SC Judgment in Airfreight Ltd. vs State Of Karnataka & Ors., decided on 4 August 1999, has not been brought to the notice of the judges.
Regards,
From India, Andheri
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(Fact Checked)-The user's reply contains accurate information and analysis of the Supreme Court judgment regarding special allowances and basic wages under the EPF Act, 1952. (1 Acknowledge point)
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In response to Mr. Anonymous, I would like to say the following:
Airfreight Ltd. vs State Of Karnataka & Ors.
Decided on 4 August 1999, the judgment is not related to the EPF as it is concerned with the minimum wages, specifically regarding the inclusion of the DA part in the Basic for the minimum wages.
It is incorrect to say that the Honorable Supreme Court of India has not clarified the statute clearly. The Apex Court has properly interpreted Section 2(b) and Section 6 of the EPF and Misc. Provision Act 1952 based on the rules of interpretation. Actually, the legislature should have implemented a percentage basis like ESIC on the total payment. However, it was enacted in 1952. It requires amendment so that no room is left for any corruption.
Thanks to all.
Regards, Raj Singh Phogat
Labour Law Consultant
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From India, Delhi
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Airfreight Ltd. vs State Of Karnataka & Ors.
Decided on 4 August 1999, the judgment is not related to the EPF as it is concerned with the minimum wages, specifically regarding the inclusion of the DA part in the Basic for the minimum wages.
It is incorrect to say that the Honorable Supreme Court of India has not clarified the statute clearly. The Apex Court has properly interpreted Section 2(b) and Section 6 of the EPF and Misc. Provision Act 1952 based on the rules of interpretation. Actually, the legislature should have implemented a percentage basis like ESIC on the total payment. However, it was enacted in 1952. It requires amendment so that no room is left for any corruption.
Thanks to all.
Regards, Raj Singh Phogat
Labour Law Consultant
[Email Removed For Privacy Reasons]
[Phone Number Removed For Privacy-Reasons]
From India, Delhi
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(Fact Checked)-[response] The Supreme Court judgment referred to does not relate to EPF, but the user's interpretation of the EPF Act is accurate. (1 Acknowledge point)
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I would like to understand the EPF contribution for basic salaries above 15,000 Rs. If employee is contributing EPF at actuals, will the new supreme court ruling decrease the NET Takehome salary ?
From India, Jaipur
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From India, Jaipur
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(Fact Checked)-The Supreme Court ruling on special allowances impacting PF calculation doesn't affect EPF contributions for salaries above 15,000 Rs. Net take-home salary remains unchanged. (1 Acknowledge point)
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(Fact Checked)-The Supreme Court ruling clarified that special allowances are part of basic wages for PF calculation. Contributions for salaries above Rs. 15,000 are optional and won't lower take-home pay. (1 Acknowledge point)
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Dear friend from Jaipur, the SC's judgment has not ordered anything on 'NET Takehome salary' or anything for those drawing above Rs.15,000/-. The order obligates employers to include other allowances, including 'Special allowance' etc., if any, (excepting HRA) in respect of those drawing up to Rs.15,000/- for the purpose of calculating EPF contribution. Takehome pay is something different, which consequently undergoes change as a result of this judgment, as it is expected that due to the inclusion of other allowances in basic salary (which could have been excluded till now) for EPF. Therefore, recovery towards PF is likely to increase, thereby net takehome salary is bound to decrease. But at the same time, don't ignore that by an increase in recovery and the same remitted to your EPF account, your savings correspondingly get boosted up. Just from your left side pocket to the right side pocket.
From India, Bangalore
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From India, Bangalore
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Dear Rajsingh, with due respect to you and to your chair. As stated by you, "Airfreight Ltd. vs State Of Karnataka & Ors. decided on 4 August 1999 judgment is not related to the EPF as it is concerned with the minimum wages and that also regarding DA part inclusion in the Basic for the minimum wages."
As PF is deducted based on the Minimum Wages inclusive of DA declared by State or Central Govt. from time to time for Schedule Employment under the Act, the Apex Court has ruled that there is no infringement if the declared Minimum Wages Gross Amount is split into various components. Further, recently in the matter of the MADRAS HC Order dated 17.04.2018 in WP No 22127 of 2014 in the case of M/s Te-chest Composition India (P) Ltd. vs. The Regional PF Commissioner (C&R), the Apex court in the same judgment has upheld the Airfreight Judgment.
The Hon’ble Supreme Court in none of the earlier judgments nor in the present judgment RPFC –II, West Bengal vs. Vivekanand Vidyamandir & others considered the scope of the words “or any other similar allowance payable to the employee in respect of his employment or of work done in such employment” under EPF Section 2(b)(ii).
It is not out of place to mention here that the review petition has been filed by Surya Roshni Ltd. vs. EPF and others against the judgment. Let's hope the Apex court will throw some light on EPF Sec 2(b)(ii).
Regards,
From India, Mumbai
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As PF is deducted based on the Minimum Wages inclusive of DA declared by State or Central Govt. from time to time for Schedule Employment under the Act, the Apex Court has ruled that there is no infringement if the declared Minimum Wages Gross Amount is split into various components. Further, recently in the matter of the MADRAS HC Order dated 17.04.2018 in WP No 22127 of 2014 in the case of M/s Te-chest Composition India (P) Ltd. vs. The Regional PF Commissioner (C&R), the Apex court in the same judgment has upheld the Airfreight Judgment.
The Hon’ble Supreme Court in none of the earlier judgments nor in the present judgment RPFC –II, West Bengal vs. Vivekanand Vidyamandir & others considered the scope of the words “or any other similar allowance payable to the employee in respect of his employment or of work done in such employment” under EPF Section 2(b)(ii).
It is not out of place to mention here that the review petition has been filed by Surya Roshni Ltd. vs. EPF and others against the judgment. Let's hope the Apex court will throw some light on EPF Sec 2(b)(ii).
Regards,
From India, Mumbai
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Supreme court judgement on Covnvence allowance.pdf
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(Fact Checked)-The information provided in the user reply is mostly accurate. However, it's important to note that the recent Supreme Court judgment clarified that special allowances are to be included in the definition of "basic wages" for PF deduction. This decision impacts both employees and employers in the calculation of PF contributions. Overall, the reply offers valuable insights and considerations. (1 Acknowledge point)