Hi Anuradha,
As you know, EPF contribution is directly relevant to 'salary/wages' for those drawing upto Rs.15,000 only and I think there is no impediment administering contribution as 'voluntary' in respect of those drawing above Rs.15,000. By virtue of this decision, if the basic wages for PF purpose exceeds INR 15,000 p.m., are the employers required to contribute on this higher amount? This decision has not dealt with this aspect. Interestingly, in another SC 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 p.m.). 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 the 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 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 p.m., is not applicable to them, and they are required to contribute PF on the total wage amount even beyond Rs.15k as per law stipulated.
From India, Bangalore
1073As you know, EPF contribution is directly relevant to 'salary/wages' for those drawing upto Rs.15,000 only and I think there is no impediment administering contribution as 'voluntary' in respect of those drawing above Rs.15,000. By virtue of this decision, if the basic wages for PF purpose exceeds INR 15,000 p.m., are the employers required to contribute on this higher amount? This decision has not dealt with this aspect. Interestingly, in another SC 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 p.m.). 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 the 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 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 p.m., is not applicable to them, and they are required to contribute PF on the total wage amount even beyond Rs.15k as per law stipulated.
From India, Bangalore
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
From India, Mumbai
There is no judgement attached. Is this judgement regarding the SC judgement of decreasing PF contribution to the statutory limit. Plz share
From India, Mumbai
From India, Mumbai
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
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
Dear All,
Please find the attached interpretation and impact on PF Contribution post Supreme Court’s verdict by 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 and not just on the basic salary.
The Supreme Court ruled that 'special allowance' must be included in basic pay for 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 here are as under -
1. PF ceiling of 15,000/-pm is same ,it has not been revised.
2. If minimum PF contribution as per ceiling is paid i.e 1800/- PM from Both Employee And Employer then there is no need to change.
3. IF contribution is less than 1800 and if Gross is more or up to 15,000/- Rs pm , where Basic is less than 15,000 and remaining amount is bifurcated among different heads then excluding HRA And Statutory Bonus, all other heads to be considered with Basic for framing PF wages up to 15,000/- or on total of all heads if total of all heads is less than 15,000/- then on that entire total amount as arrived to considered as wage for PF to be calculated on.
4. There is no new provision but it is interpretation to the existing section/ Term. Hence date of implication is not expected it is ongoing rule.
5. PF authority may have recourse to the verdict of SC while conducting the inspections and computation of liability up to wage ceiling as defined under the law
Regards,
Compliance First
From India, Pune
Please find the attached interpretation and impact on PF Contribution post Supreme Court’s verdict by 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 and not just on the basic salary.
The Supreme Court ruled that 'special allowance' must be included in basic pay for 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 here are as under -
1. PF ceiling of 15,000/-pm is same ,it has not been revised.
2. If minimum PF contribution as per ceiling is paid i.e 1800/- PM from Both Employee And Employer then there is no need to change.
3. IF contribution is less than 1800 and if Gross is more or up to 15,000/- Rs pm , where Basic is less than 15,000 and remaining amount is bifurcated among different heads then excluding HRA And Statutory Bonus, all other heads to be considered with Basic for framing PF wages up to 15,000/- or on total of all heads if total of all heads is less than 15,000/- then on that entire total amount as arrived to considered as wage for PF to be calculated on.
4. There is no new provision but it is interpretation to the existing section/ Term. Hence date of implication is not expected it is ongoing rule.
5. PF authority may have recourse to the verdict of SC while conducting the inspections and computation of liability up to wage ceiling as defined under the law
Regards,
Compliance First
From India, Pune
Dear Shailesh Parikh / Anuradha / Sai Consultant / Kumar / PCA
Without Prejudice from My Perspective Apex court has Unfortunately lost a golden opportunity ismissed 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 were before the judgement. 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 judgements of the court.
The argument of the department advanced through Additional Solicitor General was limited to the question as to whether special allowance falls within the definition of basic wage though the appeals by the managements were in respect of/travel allowance/canteen allowance/management allowance/conveyance allowance, education allowance/food concession and 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 was that the basic wages defined under Section 2(b) contains 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 are 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 Bridge and Roof case and reproduced the entire paragraphs 7 and 8 of the said judgement. 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 analysed 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 amount 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 definition of `basic wage’. This leaves us where we started, and that is, confusion still prevails.
In fact, issue before the court was, as to 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, 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. May be, 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 the least SC Judgement in Airfreight Ltd. vs State Of Karnataka & Ors. decided on 4 August, 1999,has not brought to the notice of Judges.
Regards,
From India, Andheri
Without Prejudice from My Perspective Apex court has Unfortunately lost a golden opportunity ismissed 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 were before the judgement. 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 judgements of the court.
The argument of the department advanced through Additional Solicitor General was limited to the question as to whether special allowance falls within the definition of basic wage though the appeals by the managements were in respect of/travel allowance/canteen allowance/management allowance/conveyance allowance, education allowance/food concession and 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 was that the basic wages defined under Section 2(b) contains 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 are 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 Bridge and Roof case and reproduced the entire paragraphs 7 and 8 of the said judgement. 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 analysed 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 amount 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 definition of `basic wage’. This leaves us where we started, and that is, confusion still prevails.
In fact, issue before the court was, as to 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, 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. May be, 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 the least SC Judgement in Airfreight Ltd. vs State Of Karnataka & Ors. decided on 4 August, 1999,has not brought to the notice of Judges.
Regards,
From India, Andheri
Dear All,
I want to through some light on the subject as i have replied the Section 7A notice of the one of the establishment. The following are the points which still holds good:-
1. That the Hon’ble Supreme Court of India in Civil Appeal No. 6221 in the case titled The Regional Provident Fund Commissioner (II) (WB) Vs Vivekananda Vidyamandir And Others has not struck down the provisio (ii) of the section 2 b of the Employee’s Provident Fund and Miscellaneous Provision Act, 1952 and the said exceptions still holds good.
2. While excluding any allowance from the basic wages for the contributions under section 6, we have to be cautious for the following attributes/characteristics:
a) Allowances which are of universal nature and are being paid to all employees across the board should be included in the basic wages for contribution under section 6. e.g transportation allowance, special allowances, production bonus to all without any criteria.
b) Allowances which are variable in nature and are not paid across the board to all employees in the establishment. e.g HRA to some employees , Leave encashment to all but different individually, bonus to some employees on extra work, sales incentives to some employees who earned it.
c) Extra Allowances above should be such as being earned on availing the opportunity to work extra and hence is applicable to some one and not to others.
3. EPFO has started taking action under section 7A and has started recovering the amount. I have just faced one which is pending for reassessment.
4. EPFO can not reassess the escaped amount for contribution under section 6 by giving notice under section 7C not beyond more than five years. So limit is five years.
5. Upper ceiling still hold good of Rs 15000/- for the employer of all the establishments except with respect to the international worker.
6. If any body wants my personal services at the EPFO LEVEL for assessment, reply to notice under section 7A, review 7B, EPFO Appellate Tribunal, High Court or Supreme Court can contact me on the email.
Thanks
Adv Raj Singh Phogat
7428133893
From India, Delhi
I want to through some light on the subject as i have replied the Section 7A notice of the one of the establishment. The following are the points which still holds good:-
1. That the Hon’ble Supreme Court of India in Civil Appeal No. 6221 in the case titled The Regional Provident Fund Commissioner (II) (WB) Vs Vivekananda Vidyamandir And Others has not struck down the provisio (ii) of the section 2 b of the Employee’s Provident Fund and Miscellaneous Provision Act, 1952 and the said exceptions still holds good.
2. While excluding any allowance from the basic wages for the contributions under section 6, we have to be cautious for the following attributes/characteristics:
a) Allowances which are of universal nature and are being paid to all employees across the board should be included in the basic wages for contribution under section 6. e.g transportation allowance, special allowances, production bonus to all without any criteria.
b) Allowances which are variable in nature and are not paid across the board to all employees in the establishment. e.g HRA to some employees , Leave encashment to all but different individually, bonus to some employees on extra work, sales incentives to some employees who earned it.
c) Extra Allowances above should be such as being earned on availing the opportunity to work extra and hence is applicable to some one and not to others.
3. EPFO has started taking action under section 7A and has started recovering the amount. I have just faced one which is pending for reassessment.
4. EPFO can not reassess the escaped amount for contribution under section 6 by giving notice under section 7C not beyond more than five years. So limit is five years.
5. Upper ceiling still hold good of Rs 15000/- for the employer of all the establishments except with respect to the international worker.
6. If any body wants my personal services at the EPFO LEVEL for assessment, reply to notice under section 7A, review 7B, EPFO Appellate Tribunal, High Court or Supreme Court can contact me on the email.
Thanks
Adv Raj Singh Phogat
7428133893
From India, Delhi
In Response to Mr. Anonymous, i would like to say the following:
1. 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.
2. It is incorrect to say that Hon'ble Supreme Court of India has not clarified the statute clearly. The Apex Court has properly interpreted the section 2b and section 6 of the EPF and Misc. provision Act 1952 based on the rules of interpretation. Actually the legislature should have done the percentage basis like ESIC on the total payment. But it was enacted in 1952. It needs amendment so that no scope remains for any corruption.
Thanks to all.
Adv Raj Singh Phogat
Labour Law consultant
7428133893
From India, Delhi
1. 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.
2. It is incorrect to say that Hon'ble Supreme Court of India has not clarified the statute clearly. The Apex Court has properly interpreted the section 2b and section 6 of the EPF and Misc. provision Act 1952 based on the rules of interpretation. Actually the legislature should have done the percentage basis like ESIC on the total payment. But it was enacted in 1952. It needs amendment so that no scope remains for any corruption.
Thanks to all.
Adv Raj Singh Phogat
Labour Law consultant
7428133893
From India, Delhi
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
From India, Jaipur
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 upto Rs.15000/- for the purpose of calculating EPF contribution. Takehome pay is something different which consequently undergo change as a result of this judgment as it is expected that due to inclusion of other allowances in basic salary (which could have been excluded till now) for EPF. Therefore recovery towards PF likely to increase thereby net takehome salary bound to decrease. But at the same time, thus, don't ignore, by an increase in recovery and the same remitted to your EPF a/c, your savings correspondingly boosted up. Just from your left side pocket to right side pocket.
From India, Bangalore
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 upto Rs.15000/- for the purpose of calculating EPF contribution. Takehome pay is something different which consequently undergo change as a result of this judgment as it is expected that due to inclusion of other allowances in basic salary (which could have been excluded till now) for EPF. Therefore recovery towards PF likely to increase thereby net takehome salary bound to decrease. But at the same time, thus, don't ignore, by an increase in recovery and the same remitted to your EPF a/c, your savings correspondingly boosted up. Just from your left side pocket to right side pocket.
From India, Bangalore
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