Is EPF contribution is payable on HRA, Conveyance Allowance, Medical Allowances also?
This is in view of judgement of Hon'ble Supreme Court in the matter of Civil Appeal No. 6221 of 2011- The Regional Provident Fund Commissioner (II) West Bengal Vs. Vivekananda Vidyamandir and others and connected Civil Appeals (C A Nos 3965-66 of 2013, 3969-70 of 2013,3967-68 of 2013 and transfer case TPC No 19 of 2019).
From India, Mumbai
This is in view of judgement of Hon'ble Supreme Court in the matter of Civil Appeal No. 6221 of 2011- The Regional Provident Fund Commissioner (II) West Bengal Vs. Vivekananda Vidyamandir and others and connected Civil Appeals (C A Nos 3965-66 of 2013, 3969-70 of 2013,3967-68 of 2013 and transfer case TPC No 19 of 2019).
From India, Mumbai
There are a few checks as how to determine the allowances accountable for EPF contribution -
1) whether any such allowances are being paid uniformly for all across the board;
2) whether the periodicity is very regular at a fixed rate;
3) any specific performance is linked to such allowances;
4) whether paid in cash or in kind or (reimbursement of expenses already incurred by the employees - not accountable for EPF)
5) whether such allowances are specifically split essentially with a view to escape from EPF contribution by camouflage, otherwise it would have been part of salary/wages as per contract terms.
Also pl.read the observations of the SC cited in their judgment-
“7. The main question therefore that falls for decision is as to which of these two rival contentions is in consonance with s. 2(b). There is no doubt that "basic wages" as defined therein means all emoluments which are earned by an employee while on duty or on leave with wages in accordance with the terms of the contract of employment and which are paid or payable in cash.
If there were no exceptions to this definition, there would have been no difficulty in holding that production bonus whatever be its nature would be included within these terms. The difficulty, however, arises because the definition also provides that certain things will not be included in the term "basic wages", and these are contained in three clauses. The first clause mentions the cash value of any food concession while the third clause mentions that presents made by the employer. The fact that the exceptions contain even presents made by the employer shows that though the definition mentions all emoluments which are earned in accordance with the terms of the contract of employment, care was taken to exclude presents which would ordinarily not be earned in accordance with the terms of the contract of employment. Similarly, though the definition includes "all emoluments" which are paid or payable in cash, the exception excludes the cash value of any food concession, which in any case was not payable in cash. The exceptions therefore do not seem to follow any logical pattern which would be in consonance with the main definition.
8. Then we come to clause (ii). It excludes dearness allowance, 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.
This exception suggests that even though the main part of the definition includes all emoluments which are earned in accordance with the terms of the contract of employment, certain payments which are in fact the price of labour and earned in accordance with the terms of the contract of employment are excluded from the main part of the definition of "basic wages". It is undeniable that the exceptions contained in clause (ii) refer to payments which are earned by an employee in accordance with the terms of his contract of employment. It was admitted by counsel on both sides before us that it was difficult to find any one basis for the exceptions contained in the three clauses. It is clear however from clause (ii) that from the definition of the word "basic wages" certain earnings were excluded, though they must be earned by employees in accordance with the terms of the contract of employment. Having excluded "dearness allowance" from the definition of "basic wages", s. 6 then provides for inclusion of dearness allowance for purposes of contribution.
But that is clearly the result of the specific provision in s. 6 which lays down that contribution shall be 61/4 per centum of the basic wages, dearness allowance and retaining allowance (if any). We must therefore try to discover some basis for the exclusion in clause (ii) as also the inclusion of dearness allowance and retaining allowance (for any) in s. 6. It seems that the basis of inclusion in s. 6 and exclusion in clause (ii) is that whatever is payable in all concerns and is earned by all permanent employees is included for the purpose, of contribution under s. 6, 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. Dearness allowance (for examples is payable in all concerns either as an addition to basic wages or as a part of consolidated wages where a concern does not have separate dearness allowance and basic wages. Similarly, retaining allowance is payable to all permanent employees in all seasonal factories like sugar factories and is therefore included in s. 6; but house rent allowance is not paid in many concerns and sometimes in the same concern it is paid to some employees but not to others, for the theory is that house rent
is included in the payment of basic wages plus dearness allowance or consolidated wages. Therefore, house rent allowance which may not be payable to all employees of a concern and which is certainly not paid by all concern is taken out of the definition of "basic wages", even though the basis of payment of house rent allowance where it is paid is the contract of employment.
Similarly, overtime allowance though it is generally in force in all concerns is not earned by all employees of a concern. It is also earned in accordance with the terms of the contract of employment; but because it may not be earned by all employees of a concern it is excluded from "basic wages". Similarly, commission or any other similar allowance is excluded from the definition of "basic wages" for commission and other allowances are not necessarily to be found in all concerns; nor are they necessarily earned by all employees of the same concern, though where they exist they are earned in accordance with the terms of the contract of employment. It seems therefore that the basis for the exclusion in clause (ii) of the exceptions in s. 2(b) is that all that is not earned in all concerns or by all employees of concern is excluded from basic wages. To this the exclusion of dearness allowance in clause (ii) is an exception.
But that exception has been corrected by including dearness allowance in s. 6 for the purpose of contribution. Dearness allowance which is an exception in the definition of "basic wages", is included for the propose of contribution by s. 6 and the real exceptions therefore in clause (ii) are the other exceptions beside dearness allowance, which has been included through S. 6.”
10. Any variable earning which may vary from individual to individual according to their efficiency and diligence will stand excluded from the term “basic wages” was considered in Muir Mills Co. Ltd., Kanpur Vs. Its Workmen, AIR 1960 SC 985 observed...
From India, Bangalore
10761) whether any such allowances are being paid uniformly for all across the board;
2) whether the periodicity is very regular at a fixed rate;
3) any specific performance is linked to such allowances;
4) whether paid in cash or in kind or (reimbursement of expenses already incurred by the employees - not accountable for EPF)
5) whether such allowances are specifically split essentially with a view to escape from EPF contribution by camouflage, otherwise it would have been part of salary/wages as per contract terms.
Also pl.read the observations of the SC cited in their judgment-
“7. The main question therefore that falls for decision is as to which of these two rival contentions is in consonance with s. 2(b). There is no doubt that "basic wages" as defined therein means all emoluments which are earned by an employee while on duty or on leave with wages in accordance with the terms of the contract of employment and which are paid or payable in cash.
If there were no exceptions to this definition, there would have been no difficulty in holding that production bonus whatever be its nature would be included within these terms. The difficulty, however, arises because the definition also provides that certain things will not be included in the term "basic wages", and these are contained in three clauses. The first clause mentions the cash value of any food concession while the third clause mentions that presents made by the employer. The fact that the exceptions contain even presents made by the employer shows that though the definition mentions all emoluments which are earned in accordance with the terms of the contract of employment, care was taken to exclude presents which would ordinarily not be earned in accordance with the terms of the contract of employment. Similarly, though the definition includes "all emoluments" which are paid or payable in cash, the exception excludes the cash value of any food concession, which in any case was not payable in cash. The exceptions therefore do not seem to follow any logical pattern which would be in consonance with the main definition.
8. Then we come to clause (ii). It excludes dearness allowance, 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.
This exception suggests that even though the main part of the definition includes all emoluments which are earned in accordance with the terms of the contract of employment, certain payments which are in fact the price of labour and earned in accordance with the terms of the contract of employment are excluded from the main part of the definition of "basic wages". It is undeniable that the exceptions contained in clause (ii) refer to payments which are earned by an employee in accordance with the terms of his contract of employment. It was admitted by counsel on both sides before us that it was difficult to find any one basis for the exceptions contained in the three clauses. It is clear however from clause (ii) that from the definition of the word "basic wages" certain earnings were excluded, though they must be earned by employees in accordance with the terms of the contract of employment. Having excluded "dearness allowance" from the definition of "basic wages", s. 6 then provides for inclusion of dearness allowance for purposes of contribution.
But that is clearly the result of the specific provision in s. 6 which lays down that contribution shall be 61/4 per centum of the basic wages, dearness allowance and retaining allowance (if any). We must therefore try to discover some basis for the exclusion in clause (ii) as also the inclusion of dearness allowance and retaining allowance (for any) in s. 6. It seems that the basis of inclusion in s. 6 and exclusion in clause (ii) is that whatever is payable in all concerns and is earned by all permanent employees is included for the purpose, of contribution under s. 6, 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. Dearness allowance (for examples is payable in all concerns either as an addition to basic wages or as a part of consolidated wages where a concern does not have separate dearness allowance and basic wages. Similarly, retaining allowance is payable to all permanent employees in all seasonal factories like sugar factories and is therefore included in s. 6; but house rent allowance is not paid in many concerns and sometimes in the same concern it is paid to some employees but not to others, for the theory is that house rent
is included in the payment of basic wages plus dearness allowance or consolidated wages. Therefore, house rent allowance which may not be payable to all employees of a concern and which is certainly not paid by all concern is taken out of the definition of "basic wages", even though the basis of payment of house rent allowance where it is paid is the contract of employment.
Similarly, overtime allowance though it is generally in force in all concerns is not earned by all employees of a concern. It is also earned in accordance with the terms of the contract of employment; but because it may not be earned by all employees of a concern it is excluded from "basic wages". Similarly, commission or any other similar allowance is excluded from the definition of "basic wages" for commission and other allowances are not necessarily to be found in all concerns; nor are they necessarily earned by all employees of the same concern, though where they exist they are earned in accordance with the terms of the contract of employment. It seems therefore that the basis for the exclusion in clause (ii) of the exceptions in s. 2(b) is that all that is not earned in all concerns or by all employees of concern is excluded from basic wages. To this the exclusion of dearness allowance in clause (ii) is an exception.
But that exception has been corrected by including dearness allowance in s. 6 for the purpose of contribution. Dearness allowance which is an exception in the definition of "basic wages", is included for the propose of contribution by s. 6 and the real exceptions therefore in clause (ii) are the other exceptions beside dearness allowance, which has been included through S. 6.”
10. Any variable earning which may vary from individual to individual according to their efficiency and diligence will stand excluded from the term “basic wages” was considered in Muir Mills Co. Ltd., Kanpur Vs. Its Workmen, AIR 1960 SC 985 observed...
From India, Bangalore
Hi
HRA is excluded from the definition of "Basic Wages" under the PF Act and hence HRA is not covered under PF.
Conveyance and Medical will be covered under PF if these allowances are paid to all the employees and if it is paid through monthly salary. If employees are producing bills for conveyance expenses and taking reimbursement from the company (which obviously means that the amount of conveyance will change every month) then it is not covered under PF.
Regards
Adv. Manish Gadre
From India, Mumbai
HRA is excluded from the definition of "Basic Wages" under the PF Act and hence HRA is not covered under PF.
Conveyance and Medical will be covered under PF if these allowances are paid to all the employees and if it is paid through monthly salary. If employees are producing bills for conveyance expenses and taking reimbursement from the company (which obviously means that the amount of conveyance will change every month) then it is not covered under PF.
Regards
Adv. Manish Gadre
From India, Mumbai
we are an NBFC . we pay Rs.2000 as conveyance reimbursement to our business team employees for doing their daily sourcing and collection job . this amount is paid separately on producing claim form .
is this amount subject to PF, ESIC & PT deduction .
From India, Mumbai
is this amount subject to PF, ESIC & PT deduction .
From India, Mumbai
Any payment by way of defraying expenses incurred for and on behalf employer or in the course of performing official duties need not be covered for recovery of EPF/ESIC/PT. As an employer what you have to take care of is to maintain sort of records to regulate such reimbursements to satisfy they are not regular "allowances" uniformly paid as a routine for all on such duty and frequency is also fit into to this criteria.
From India, Bangalore
From India, Bangalore
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