Dear Friends,
I am working with a Publishing Company in Chennai with a PAN India strength of 60 Staff - We already covered under PF and remitting the PF for the staff getting Gross of less than Rs.25000(Around 15 Persons)
Our current salary structure consists of 60% Basic - And the Management decided to change it to 30%
So needed the following assistance and clarifications or opinions:
1. New Pay structure will be Basic 30% + HRA 35% + Spl.All-35% (Can HRA be more than Basic.?)
So, Gross Remains same, Nett will be lesser (-PF) & CTC will be higher (+PF)
2. Now we planned to cover and remit the PF to all the staff (Basic of 30% and limit the PF ceiling to Rs.15000) - But not going to change the Basic of staff who are already remitting the PF to avoid any repercussions from EPF Office (Your opinion please.!)
Going to implement the same with 2 month notice (i.e. w.e.f from 1st Jan 2019)
3. We dont have Leave Encashment policy as of now - So, what are the benefits and loss to the Employees.?
(Like Employees going to lose 50% of their Gratuity, But gets 12% of PF from Employer side, etc.)
4. How to handle the staff those who are not willing to accept the change and the points to convince them
Looking for replies - thanks in advance
Raj.
From India, Madras
I am working with a Publishing Company in Chennai with a PAN India strength of 60 Staff - We already covered under PF and remitting the PF for the staff getting Gross of less than Rs.25000(Around 15 Persons)
Our current salary structure consists of 60% Basic - And the Management decided to change it to 30%
So needed the following assistance and clarifications or opinions:
1. New Pay structure will be Basic 30% + HRA 35% + Spl.All-35% (Can HRA be more than Basic.?)
So, Gross Remains same, Nett will be lesser (-PF) & CTC will be higher (+PF)
2. Now we planned to cover and remit the PF to all the staff (Basic of 30% and limit the PF ceiling to Rs.15000) - But not going to change the Basic of staff who are already remitting the PF to avoid any repercussions from EPF Office (Your opinion please.!)
Going to implement the same with 2 month notice (i.e. w.e.f from 1st Jan 2019)
3. We dont have Leave Encashment policy as of now - So, what are the benefits and loss to the Employees.?
(Like Employees going to lose 50% of their Gratuity, But gets 12% of PF from Employer side, etc.)
4. How to handle the staff those who are not willing to accept the change and the points to convince them
Looking for replies - thanks in advance
Raj.
From India, Madras
Reduction/in downward revision in Basic resulting in reduction in EPF contribution is not permissible. Increase in HRA or any other allw. as compensatory measures, to show overall NIL reduction in gross or increase also not permissible and it cannot be undone like this. Pl.refer relevant attachment in my previous posting.
EMPLOYEES’ PROVIDENT FUND ORGANISATION
Bhavishya Nidhi Bhawan, 14,
Bhikaji Cama Place, New Delhi – 110 066.
No.Coord/4(6)2003/Clarification/VolII/7394
Dated : 23.5.2011
All Addl. CPFCs (Zones) All RPFCs (In-charge of Regions/Sub-Regions)
Sub : Splitting of Minimum Wages for the purpose of PF contribution not permissible.
Sir,
Attention of all concerned is invited towards this office circular No.Coord./4(6)2003/Clarification/13633 dated 6.6.2008 vide which it was advised to ensure that P.F. Contributions on at least Minimum Wages are remitted by the establishments. It was also directed to review all such cases disposed of u/s 7A of the Act where determination of dues has taken place on wages lesser than Minimum Wages.
2. However, it has been observed that still uniform approach in this regard is not followed by the field offices which is viewed seriously. It is also observed that the field offices are not duly defending the issue in spite of the fact that the Division Bench of Hon’ble High Court, Karnataka in the matter of Group 4 Securities Guarding Ltd. vs. RPFC has categorically upheld the view that RPFCs u/s. 7A of the Act can examine and look into the nature of contract entered between the employer and its employees as well as the pay structure to decide whether the pay is being split up under several heads as a subterfuge to avoid PF contribution.
3. The order of the Division Bench was challenged by the establishment before the Apex Court. While tentatively upholding the order of the Division Bench, the Hon’ble Supreme Court in its order dated 23.7.2004 again granted liberty to the authorities to decide the matter in accordance with law on its merits. As such the authorities have to consider the order of the Division Bench of Hon’ble High Court, Karnataka unless there is substantial evidence to lead otherwise.
4. Accordingly, the matter has been examined in view of the Apex Court’s direction and the following guidelines are issued which should be adhered to and followed by all strictly.
5. The EPF & MP Act, 1952 is a beneficial social security legislation. In construing the provisions of the Act, it has already been settled earlier* that wherever two views are reasonably possible, the view which helps the achievement of the object should be preferred and accordingly the assessing authority while determining dues under section 7A should curb any attempt to curtail the legitimate social security benefits of the employees. It is needless to reiterate the impact of contribution on lesser wages by splitting the wages into different heads, which results in lesser accumulations in PF account and miniscule pension to the member/family.
[*The RPFC, Punjab vs. Shibu Metal Works - 1965 (1) LLJ 473].
6. As you are aware, section 2(b) of EPF & MP Act, 1952 defines the basic wage which excludes all kind of allowances from being considered as basic wage. As the term suggests, ‘basic wage’ or ‘basic salary’ is the base salary which is provided to a person in lieu of his services. It is without any allowances which may or may not be added to basic wages in terms of employment.
7. However, it appears that some confusion is prevailing among field offices as to whether basic wages can be lower than the minimum wages or whether an establishment paying minimum wages to its employees can be allowed to split up the wages into various allowances reducing the PF contribution by making it a part of “terms of employment or Contract”.
8. It would be worth to see that the terms ‘basic’, ‘basic wage’ and ‘minimum wage’ are defined in Oxford Dictionary as below :
(i) “basic. Adj.1. forming an essential foundation; fundamental. 2. consisting of the minimum required or offered”
(ii) “basic wage. n.1 a minimum wage earned before additional payments such as overtime. 2. Austral/NZ/ the minimum living wage, as determined by industrial tribunal”
(iii) “minimum wage, n. the lowest wage permitted by law or by agreement”.
9. Thus, whereas the minimum wage is the lowest permitted wage ought to be paid to a worker as per law as upheld and revisited on various occasions by the Hon’ble Supreme Court*, basic wage is only relevant for allowing additional allowances by treating it (basic wage) as a basic/floor level.
(*Crown Aluminium Works vs. Workers Union, [1958 Vol.I LLJ, Page I), Unichoyi vs. State of Kerala [1961 Vol.I LLJ P.631], Kamani Metals & Alloys Ltd. vs. Their Workmen [1967 Vol.II-55; (1967) 2 SCR Page 463]).
10. Another aspect of basic wage/salary is that it is provided to all classes of employees irrespective of quantum of their salary and its quantum varies with every class/post of an employee whereas minimum wage is prescribed only for the lowest paid employee to whom any lesser payment of wages is not permitted by law.
11. From above, it is abundantly clear that basic wage in no case can be lesser than the minimum wage as the same is not only contrary to law of land but is also beyond logic and rationale that an establishment which cannot pay even minimum wages to its employees, would be willing to pay allowances to them and if such instances exist, there is certainly a malafide motive which may be considered as knowingly making or causing to make false statement/representation punishable u/s 14(1) of EPF & MP Act, 1952. It may also attract the provision of section 418 of IPC.
12. Further, it also needs to be kept in mind that any agreement which negates any law of land is ab-initio-void and would have effect of non-existence. Therefore, any such terms of agreement for employment where minimum wages is splitted to reduce the liability under EPF & MP Act, 1952 would be governed by the same logic as it is against the provisions of Minimum Wages Act and hence illegal.
13. Also Minimum Wage being a state matter, clarifications were sought from various State Governments. The replies received reveal that minimum wage is a lump sum composite amount arrived at by following the permissible procedure of fixation as revised from time to time and it cannot be segregated and reclassified. Thus, the State Governments have also observed that splitting of minimum wages is not permissible in the eye of law.
14. Accordingly, all concerned are directed to ensure that P.F. Contributions are not remitted on wages less than Minimum Wages since every employer is legally bound to pay at least minimum wages to his/her employees and minimum wages are not amenable to split up. It is not pay package.*
[*Civil Appeal 4259 of 1999 Air Freight Ltd. vs. State of Karnataka and Ors., 1999 Supp.(1) SCR 22]
15. It is needless to mention that wherever the matter regarding splitting of wages is challenged or pending in a court of law, the stand of department along with all rules and guidelines of Hon’ble Supreme Court should be effectively utilised to defend the case. It is also mentioned that nothing said above shall come in way of implementation/execution of any order of a court of law.
16. The assessing officers shall examine full facts about the wage structure, minimum wages prescribed by the appropriate govt. for the relevant class and provide reasonable opportunity to the establishment before deciding the subterfuge, if any.
All the concerned officials/officers are requested to strictly comply with above said guidelines in regard to subject matter.
Please acknowledge receipt.
(This issues with the approval of CPFC)
(K.C. Pandey) Addl. Central P.F. Commissioner(Compliance)
From India, Bangalore
1073EMPLOYEES’ PROVIDENT FUND ORGANISATION
Bhavishya Nidhi Bhawan, 14,
Bhikaji Cama Place, New Delhi – 110 066.
No.Coord/4(6)2003/Clarification/VolII/7394
Dated : 23.5.2011
All Addl. CPFCs (Zones) All RPFCs (In-charge of Regions/Sub-Regions)
Sub : Splitting of Minimum Wages for the purpose of PF contribution not permissible.
Sir,
Attention of all concerned is invited towards this office circular No.Coord./4(6)2003/Clarification/13633 dated 6.6.2008 vide which it was advised to ensure that P.F. Contributions on at least Minimum Wages are remitted by the establishments. It was also directed to review all such cases disposed of u/s 7A of the Act where determination of dues has taken place on wages lesser than Minimum Wages.
2. However, it has been observed that still uniform approach in this regard is not followed by the field offices which is viewed seriously. It is also observed that the field offices are not duly defending the issue in spite of the fact that the Division Bench of Hon’ble High Court, Karnataka in the matter of Group 4 Securities Guarding Ltd. vs. RPFC has categorically upheld the view that RPFCs u/s. 7A of the Act can examine and look into the nature of contract entered between the employer and its employees as well as the pay structure to decide whether the pay is being split up under several heads as a subterfuge to avoid PF contribution.
3. The order of the Division Bench was challenged by the establishment before the Apex Court. While tentatively upholding the order of the Division Bench, the Hon’ble Supreme Court in its order dated 23.7.2004 again granted liberty to the authorities to decide the matter in accordance with law on its merits. As such the authorities have to consider the order of the Division Bench of Hon’ble High Court, Karnataka unless there is substantial evidence to lead otherwise.
4. Accordingly, the matter has been examined in view of the Apex Court’s direction and the following guidelines are issued which should be adhered to and followed by all strictly.
5. The EPF & MP Act, 1952 is a beneficial social security legislation. In construing the provisions of the Act, it has already been settled earlier* that wherever two views are reasonably possible, the view which helps the achievement of the object should be preferred and accordingly the assessing authority while determining dues under section 7A should curb any attempt to curtail the legitimate social security benefits of the employees. It is needless to reiterate the impact of contribution on lesser wages by splitting the wages into different heads, which results in lesser accumulations in PF account and miniscule pension to the member/family.
[*The RPFC, Punjab vs. Shibu Metal Works - 1965 (1) LLJ 473].
6. As you are aware, section 2(b) of EPF & MP Act, 1952 defines the basic wage which excludes all kind of allowances from being considered as basic wage. As the term suggests, ‘basic wage’ or ‘basic salary’ is the base salary which is provided to a person in lieu of his services. It is without any allowances which may or may not be added to basic wages in terms of employment.
7. However, it appears that some confusion is prevailing among field offices as to whether basic wages can be lower than the minimum wages or whether an establishment paying minimum wages to its employees can be allowed to split up the wages into various allowances reducing the PF contribution by making it a part of “terms of employment or Contract”.
8. It would be worth to see that the terms ‘basic’, ‘basic wage’ and ‘minimum wage’ are defined in Oxford Dictionary as below :
(i) “basic. Adj.1. forming an essential foundation; fundamental. 2. consisting of the minimum required or offered”
(ii) “basic wage. n.1 a minimum wage earned before additional payments such as overtime. 2. Austral/NZ/ the minimum living wage, as determined by industrial tribunal”
(iii) “minimum wage, n. the lowest wage permitted by law or by agreement”.
9. Thus, whereas the minimum wage is the lowest permitted wage ought to be paid to a worker as per law as upheld and revisited on various occasions by the Hon’ble Supreme Court*, basic wage is only relevant for allowing additional allowances by treating it (basic wage) as a basic/floor level.
(*Crown Aluminium Works vs. Workers Union, [1958 Vol.I LLJ, Page I), Unichoyi vs. State of Kerala [1961 Vol.I LLJ P.631], Kamani Metals & Alloys Ltd. vs. Their Workmen [1967 Vol.II-55; (1967) 2 SCR Page 463]).
10. Another aspect of basic wage/salary is that it is provided to all classes of employees irrespective of quantum of their salary and its quantum varies with every class/post of an employee whereas minimum wage is prescribed only for the lowest paid employee to whom any lesser payment of wages is not permitted by law.
11. From above, it is abundantly clear that basic wage in no case can be lesser than the minimum wage as the same is not only contrary to law of land but is also beyond logic and rationale that an establishment which cannot pay even minimum wages to its employees, would be willing to pay allowances to them and if such instances exist, there is certainly a malafide motive which may be considered as knowingly making or causing to make false statement/representation punishable u/s 14(1) of EPF & MP Act, 1952. It may also attract the provision of section 418 of IPC.
12. Further, it also needs to be kept in mind that any agreement which negates any law of land is ab-initio-void and would have effect of non-existence. Therefore, any such terms of agreement for employment where minimum wages is splitted to reduce the liability under EPF & MP Act, 1952 would be governed by the same logic as it is against the provisions of Minimum Wages Act and hence illegal.
13. Also Minimum Wage being a state matter, clarifications were sought from various State Governments. The replies received reveal that minimum wage is a lump sum composite amount arrived at by following the permissible procedure of fixation as revised from time to time and it cannot be segregated and reclassified. Thus, the State Governments have also observed that splitting of minimum wages is not permissible in the eye of law.
14. Accordingly, all concerned are directed to ensure that P.F. Contributions are not remitted on wages less than Minimum Wages since every employer is legally bound to pay at least minimum wages to his/her employees and minimum wages are not amenable to split up. It is not pay package.*
[*Civil Appeal 4259 of 1999 Air Freight Ltd. vs. State of Karnataka and Ors., 1999 Supp.(1) SCR 22]
15. It is needless to mention that wherever the matter regarding splitting of wages is challenged or pending in a court of law, the stand of department along with all rules and guidelines of Hon’ble Supreme Court should be effectively utilised to defend the case. It is also mentioned that nothing said above shall come in way of implementation/execution of any order of a court of law.
16. The assessing officers shall examine full facts about the wage structure, minimum wages prescribed by the appropriate govt. for the relevant class and provide reasonable opportunity to the establishment before deciding the subterfuge, if any.
All the concerned officials/officers are requested to strictly comply with above said guidelines in regard to subject matter.
Please acknowledge receipt.
(This issues with the approval of CPFC)
(K.C. Pandey) Addl. Central P.F. Commissioner(Compliance)
From India, Bangalore
Thanks for the above Explanations Mr.Kumar.S, But it doesnt cleared my doubts.
1. We are already covered PF for the staff who are getting less than 25000/- (So,Basic is (60%)Rs.15000 & not going to change the basic and which is higher than S&E Minimum Wages - Max amount i.e. Rs.6970)
2. We are going to change the Basic from 60% to 30% for the staff who all are getting more than Rs.25K (i.e.basic is (30%)Rs.7500) - so the basic will be already more than Minimum wages.
So isn't it still abiding law.? And moreover now we are going to cover 100% staff
Please advice.
From India, Madras
1. We are already covered PF for the staff who are getting less than 25000/- (So,Basic is (60%)Rs.15000 & not going to change the basic and which is higher than S&E Minimum Wages - Max amount i.e. Rs.6970)
2. We are going to change the Basic from 60% to 30% for the staff who all are getting more than Rs.25K (i.e.basic is (30%)Rs.7500) - so the basic will be already more than Minimum wages.
So isn't it still abiding law.? And moreover now we are going to cover 100% staff
Please advice.
From India, Madras
Dear Harnish,
I'm not able to understand the purpose behind the reduction of basic from the existing 60% to 30% . Does this going to impact the gross salary of these staff and thus going to cause reduction in their social benefits like EPF/EPS contribution, gratuity etc. And if this results in alteration of contract of appointment/affecting their service conditions and whether this proposal is communicated to all the staff involved and their concurrences are obtained ?
From India, Bangalore
I'm not able to understand the purpose behind the reduction of basic from the existing 60% to 30% . Does this going to impact the gross salary of these staff and thus going to cause reduction in their social benefits like EPF/EPS contribution, gratuity etc. And if this results in alteration of contract of appointment/affecting their service conditions and whether this proposal is communicated to all the staff involved and their concurrences are obtained ?
From India, Bangalore
What is the basis of payment of HRA to an workmen?
Is it necessary to pay HRA to each and every workmen?
Is HRA and conveyance, should be equal or in equal proportion to all the workmen?
A workmen is getting more/equal "Basic wage" but less "HRA" compare to another workmen, in such case is there any unfair Labour Practice from Employer and can the workmen claim for the difference of HRA, if yes to which authority he should approach (specially in the state where there is no special provision for HRA ).
Example:
'A' workmen getting Basic wage 6000 and HRA 1000 Conveyance 1000
'B' workmen getting Basic wage 6000 and HRA 2000 Conveyance 800
'C' workmen getting Basic wage 5000 and HRA 3000 Conveyance 1000
A, B & C all are male workmen, working in the same unit of company and living in the same city.
In above example: Is there unfair Labour practice from employer?
Will it attract any violation under Equal Remuneration Act, Minimum Wages Act and/or any other Act?
From India, Mumbai
Is it necessary to pay HRA to each and every workmen?
Is HRA and conveyance, should be equal or in equal proportion to all the workmen?
A workmen is getting more/equal "Basic wage" but less "HRA" compare to another workmen, in such case is there any unfair Labour Practice from Employer and can the workmen claim for the difference of HRA, if yes to which authority he should approach (specially in the state where there is no special provision for HRA ).
Example:
'A' workmen getting Basic wage 6000 and HRA 1000 Conveyance 1000
'B' workmen getting Basic wage 6000 and HRA 2000 Conveyance 800
'C' workmen getting Basic wage 5000 and HRA 3000 Conveyance 1000
A, B & C all are male workmen, working in the same unit of company and living in the same city.
In above example: Is there unfair Labour practice from employer?
Will it attract any violation under Equal Remuneration Act, Minimum Wages Act and/or any other Act?
From India, Mumbai
Dear Mr.Kumar,
1. Currently we are not covered all the staff under EPF (But staff those getting less than 25K)
So, Management planned to cover all the staff ceiling the PF calculation limit to Rs.15K
2. The Gross salary will not be changed (But Nett will be less (-PF) & CTC will be high (+PF)
And yes it will definitely affects the Gratuity
3. The Change in Basic will be implemented in 2 months time and the staff will be given prior notice/Change of pay structure letter.
4. My other query is 'How to handle the staff those who are not willing to accept the change and the points to convince them'.!
Thanks.
From India, Madras
1. Currently we are not covered all the staff under EPF (But staff those getting less than 25K)
So, Management planned to cover all the staff ceiling the PF calculation limit to Rs.15K
2. The Gross salary will not be changed (But Nett will be less (-PF) & CTC will be high (+PF)
And yes it will definitely affects the Gratuity
3. The Change in Basic will be implemented in 2 months time and the staff will be given prior notice/Change of pay structure letter.
4. My other query is 'How to handle the staff those who are not willing to accept the change and the points to convince them'.!
Thanks.
From India, Madras
Hi Hanish,
My hunch is, employees may not create fuss when their gross is not reduced. But the concern is about its impact on gratuity which will definitely create problem. No one is going to take it for granted whatsoever the justification could be. This anomaly has to be addressed.
I'm still not clear what drives you to reduce the basic pay, the motive behind this, is't just to reduce your gratuity costs? I don't think it worth the troubles being taken.
From India, Bangalore
My hunch is, employees may not create fuss when their gross is not reduced. But the concern is about its impact on gratuity which will definitely create problem. No one is going to take it for granted whatsoever the justification could be. This anomaly has to be addressed.
I'm still not clear what drives you to reduce the basic pay, the motive behind this, is't just to reduce your gratuity costs? I don't think it worth the troubles being taken.
From India, Bangalore
Dear Friends,
Just small clarification required, If not required to pay the epf for 10 number of fixed salary contractual employees. Then what is the Undertaking/declaration form will submit to client....,
Please send me the form.....
From India, Nawabpet
Just small clarification required, If not required to pay the epf for 10 number of fixed salary contractual employees. Then what is the Undertaking/declaration form will submit to client....,
Please send me the form.....
From India, Nawabpet
Hi Saisuresh,
It's an important liability on the part of Principal Employer to ensure EPF is recovered from employees as well as of employer(the contractor) and remitted to the PF accounts of employees. Failing which it'll become the ultimate liability of the PE to remit to EPFO. The PE may adjust the thus remitted money from the labour bill payable to the Contractor. No undertaking or declaration will help in a situation when the contributions are not remitted by due dates to EPFO as it's ultimate responsibility of the Principal Employer. Therefore it's necessary for PE to verify and obtain copies of EPF remitted challans and safe keep them for future references and this should happen before release of payment to the contractor. The PE will have legal rights to recover amounts involved from the contractor's bill if the contractor defaulted in remittance relating to earlier months. Only this will safe guard the PE from any charge of violations.
From India, Bangalore
It's an important liability on the part of Principal Employer to ensure EPF is recovered from employees as well as of employer(the contractor) and remitted to the PF accounts of employees. Failing which it'll become the ultimate liability of the PE to remit to EPFO. The PE may adjust the thus remitted money from the labour bill payable to the Contractor. No undertaking or declaration will help in a situation when the contributions are not remitted by due dates to EPFO as it's ultimate responsibility of the Principal Employer. Therefore it's necessary for PE to verify and obtain copies of EPF remitted challans and safe keep them for future references and this should happen before release of payment to the contractor. The PE will have legal rights to recover amounts involved from the contractor's bill if the contractor defaulted in remittance relating to earlier months. Only this will safe guard the PE from any charge of violations.
From India, Bangalore
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