Our company has a policy defined for retirement increment at fixed percentage for white collar employees. This amount is provided to the employees at the time of retirement and hence the last drawn pay slip will not reflect this amount. However, the increment amount is considered for calculation of Gratuity settlement as well as leave encashment. Since the increment is not forming part of the pay slip, PF is not deducted on such retirement increment.
As per the Gratuity Act, the last drawn basic pay would be the basis of settlement for calculating the amount for the completed years of service. Under such circumstances, can we say that the retirement increment added to the basic is last drawn wage and if so, Can PF authorities not question the exclusion of the same in the pay slip and demand to remit PF on such increment.
Can last drawn wage be different for PF and for other long term benefit calculation such as Gratuity, Leave encashment etc?
Kindly clarify as Company feels that the retirement increment is only internal policy and there is no need for inclusion in the last drawn pay slip and deduction of PF on the same.
From India, Delhi
As per the Gratuity Act, the last drawn basic pay would be the basis of settlement for calculating the amount for the completed years of service. Under such circumstances, can we say that the retirement increment added to the basic is last drawn wage and if so, Can PF authorities not question the exclusion of the same in the pay slip and demand to remit PF on such increment.
Can last drawn wage be different for PF and for other long term benefit calculation such as Gratuity, Leave encashment etc?
Kindly clarify as Company feels that the retirement increment is only internal policy and there is no need for inclusion in the last drawn pay slip and deduction of PF on the same.
From India, Delhi
What do you mean by increment? Is it not an annual increase in the salary? Normally, the salary of an employee will increase due to two reasons, one, to compensate the increase in cost of living and second to reward the performance. This increase should be evidenced in the pay slips and it should be considered for deciding PF contributions also. Of course, if your company is limiting the PF contribution on Rs 15000 which is the statutory amount beyond which the employer 'need not' contribute, and if the salary is even above that, the annual increment will not reflect in PF contribution. Then what is the purpose served by not showing the increment in the pay slip? I don't understand.
The Payment of Gratuity Act has not defined the term basic wages but only said that wages mean 'all emoluments payable as per contract of employment". It has been misinterpreted as payable on basic wages and dearness allowances. In new generation companies it is paid on basic salary alone because they don't pay any dearness allowance. But that is not right. Anyway that is out of the present discussion.
What is Retirement increment? If that is given to an employee at the time of retirement as a gift, then it is purely an internal policy. But needs clarification for further inputs from our side.
From India, Kannur
4239The Payment of Gratuity Act has not defined the term basic wages but only said that wages mean 'all emoluments payable as per contract of employment". It has been misinterpreted as payable on basic wages and dearness allowances. In new generation companies it is paid on basic salary alone because they don't pay any dearness allowance. But that is not right. Anyway that is out of the present discussion.
What is Retirement increment? If that is given to an employee at the time of retirement as a gift, then it is purely an internal policy. But needs clarification for further inputs from our side.
From India, Kannur
Thank you for your immediate response.
To clarify further, the PF deduction is not restricted to Rs.15000 but the actual basic wages of the employee as reflected in the wage records from time to time. In other words, the Company is remitting the PF of 12% on the latest basic salary of the employees and not restricting on any ceiling.
With respect to the retirement increment, it is given to employees and applied as a % on the last drawn basic wage for his performance during the year of retirement.
The question here is whether the Company can increase such basic with the retirement increment policy and apply it only on gratuity and leave encashment calculation without recording the same in the wage records of the Company. In other words, without reflection in the last drawn pay slip, can it be used for calculations of gratuity and leave encashment alone and if so, will the PF authorities not object to the non-disclosure and non-deduction of PF on such increment.
Hope I have clarified further.
From India, Delhi
To clarify further, the PF deduction is not restricted to Rs.15000 but the actual basic wages of the employee as reflected in the wage records from time to time. In other words, the Company is remitting the PF of 12% on the latest basic salary of the employees and not restricting on any ceiling.
With respect to the retirement increment, it is given to employees and applied as a % on the last drawn basic wage for his performance during the year of retirement.
The question here is whether the Company can increase such basic with the retirement increment policy and apply it only on gratuity and leave encashment calculation without recording the same in the wage records of the Company. In other words, without reflection in the last drawn pay slip, can it be used for calculations of gratuity and leave encashment alone and if so, will the PF authorities not object to the non-disclosure and non-deduction of PF on such increment.
Hope I have clarified further.
From India, Delhi
The legal requirement is that the wages as per wage slip have to be paid. If something more is paid, it is a voluntary welfare measure and the employer cannot be questioned. Since, as you said the PF deduction is on actual wages, not limited to Rs. 15,000 basis, there cannot be any objection from PF side for such additional payment. Since the calculation basis for gratuity & leave encashment is a higher amount, no illegality is observed.
From India, Mumbai
From India, Mumbai
As far as PF authorities are concerned, they have no right to demand a contribution on wages above Rs 15000. Since you are paying it on above Rs 15000, the contribution can be on any amount. In year of retirement if you pay it on pre revised basic salary the authorities cannot question it. But it is fair if you show the revised basic salary in the payslip because it will give a clarity as to how the calculation of gratuity and leave encashment are made. Any method of calculation of gratuity or leave encashment which is more beneficial to the employee is allowed. As such if you don't show the increased basic salary in the pay slip, no illegality arises so long as the amount so calculated is higher than the one calculated as per pay slip amount. Still, it is better to have some evidence by way of some office order to show that the gratuity and leave encashment (at the time of retirement ) will be calculated adding a service weightage of ... percentage increase in basic pay. That practice is fair and it will avoid confusions.
From India, Kannur
From India, Kannur
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