Dear All,
We are in the restaurant industry in Kerala. We have an employee strength of 248, and employees below 15000 are given PF and ESI benefits. We have a split-up of salary under various heads like Basic, DA, Washing Allowance, and Special Allowance. Since ours is a restaurant industry, we provide accommodation and food for employees. As per the minimum wages act, we have fixed the basic salary.
Taking the case of a utility boy who draws a salary of 8000, his Basic would be 3200, DA - 3500, washing allowance - 500, Special allo - 800. We paid the PF as (3200 + 3500), with the employee share being (6600 * 12% = 804) and the employer share being (6600 * 13.61% = 898).
PF enforcement officers are insisting on paying the entire amount, i.e., 8000, or else a 20% deduction on Basic + DA as HRA (8000 - 804 = 7196). This would make the employee share Rs. 864 (12%) and the employer share Rs. 979 (13.61%). Since we provide accommodation to employees, we cannot claim HRA under the salary head. The cost even rises to Rs. 960 (12%) and Rs. 1089 (13%).
Is there any order as per the PF act that when raised the ceiling limit from 6600 to 15000, stating only HRA can be deducted? Or are there any existing orders relating to PF stating only Basic + DA can be considered for PF deductions?
It is being heard that there is an order from the Finance Ministry stating Basic + DA is to be deducted.
Please help in this regard.
Suresh
9645202333
From United Arab Emirates, Dubai
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12We are in the restaurant industry in Kerala. We have an employee strength of 248, and employees below 15000 are given PF and ESI benefits. We have a split-up of salary under various heads like Basic, DA, Washing Allowance, and Special Allowance. Since ours is a restaurant industry, we provide accommodation and food for employees. As per the minimum wages act, we have fixed the basic salary.
Taking the case of a utility boy who draws a salary of 8000, his Basic would be 3200, DA - 3500, washing allowance - 500, Special allo - 800. We paid the PF as (3200 + 3500), with the employee share being (6600 * 12% = 804) and the employer share being (6600 * 13.61% = 898).
PF enforcement officers are insisting on paying the entire amount, i.e., 8000, or else a 20% deduction on Basic + DA as HRA (8000 - 804 = 7196). This would make the employee share Rs. 864 (12%) and the employer share Rs. 979 (13.61%). Since we provide accommodation to employees, we cannot claim HRA under the salary head. The cost even rises to Rs. 960 (12%) and Rs. 1089 (13%).
Is there any order as per the PF act that when raised the ceiling limit from 6600 to 15000, stating only HRA can be deducted? Or are there any existing orders relating to PF stating only Basic + DA can be considered for PF deductions?
It is being heard that there is an order from the Finance Ministry stating Basic + DA is to be deducted.
Please help in this regard.
Suresh
9645202333
From United Arab Emirates, Dubai
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The definition of basic salary in the PF Act remains the same but there is a proposal to amend it. With the amendment all allowances which are paid to employees in general except HRA will become part of PF qualifying salary.
As per the Employees Provident Fund and Misc. Provisions Act (section 6) PF is payable on Basic wages, dearness allowances and retaining allowance (if paid). The words basic wages given in this section is misunderstood by confining it to the basic wages as per the company's pay structure. But it has a wider meaning as given in section 2(b) of the Act. According to section 2(b) basic wages means all emoluments which are earned by an employee with the exclusion of the following:
1. cash value of the food concession
2. DA, HRA, overtime payments, commission, bonus or similar payments
3. any presents made by the employer
Of these DA is taken separately as a component of PF qualifying salary under section 6 of the Act and all other allowances expect HRA and OT wages will form part of basic salary.
In a pay structure like the one given by Suresh, there is another problem and that is with regard to special allowances. In various court verdicts, [R Ramanathan Chettiar Jewellers, Madurai vs. Regional PF Commissioner, Madurai – 1988 (ii) LLJ 045, Associated Cement Company Ltd. and Ors. v. R.M. Gandhi, Regional Provident Fund Commissioner, Gujarat(1995-III-LLJ(Suppl.)-368, Bridges and Roofs (India) Ltd Vs. Union of India [1963 (2) LLJ 490], the courts including Supreme court (in Bridges & Roofs' case) have ruled that if (special) allowance is paid commonly to all employees, that will be treated as part of basic salary and if it is paid only to some employees considering the nature of their duties or purely out of management's own interests or pleasure, then it should not be considered as part of wages for PF contribution. I don't think that the management will pay something with pleasure to utility boys so that this special allowance can be excluded from contribution.
The matter of bifurcation of salary, though with various courts including the Apex Court, may be decided in favour of PF authorities only because of the reason that this is a social security legislation benefiting the employees. Therefore, my advice is to pay it on the gross salary.
Madhu.T.K
From India, Kannur
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As per the Employees Provident Fund and Misc. Provisions Act (section 6) PF is payable on Basic wages, dearness allowances and retaining allowance (if paid). The words basic wages given in this section is misunderstood by confining it to the basic wages as per the company's pay structure. But it has a wider meaning as given in section 2(b) of the Act. According to section 2(b) basic wages means all emoluments which are earned by an employee with the exclusion of the following:
1. cash value of the food concession
2. DA, HRA, overtime payments, commission, bonus or similar payments
3. any presents made by the employer
Of these DA is taken separately as a component of PF qualifying salary under section 6 of the Act and all other allowances expect HRA and OT wages will form part of basic salary.
In a pay structure like the one given by Suresh, there is another problem and that is with regard to special allowances. In various court verdicts, [R Ramanathan Chettiar Jewellers, Madurai vs. Regional PF Commissioner, Madurai – 1988 (ii) LLJ 045, Associated Cement Company Ltd. and Ors. v. R.M. Gandhi, Regional Provident Fund Commissioner, Gujarat(1995-III-LLJ(Suppl.)-368, Bridges and Roofs (India) Ltd Vs. Union of India [1963 (2) LLJ 490], the courts including Supreme court (in Bridges & Roofs' case) have ruled that if (special) allowance is paid commonly to all employees, that will be treated as part of basic salary and if it is paid only to some employees considering the nature of their duties or purely out of management's own interests or pleasure, then it should not be considered as part of wages for PF contribution. I don't think that the management will pay something with pleasure to utility boys so that this special allowance can be excluded from contribution.
The matter of bifurcation of salary, though with various courts including the Apex Court, may be decided in favour of PF authorities only because of the reason that this is a social security legislation benefiting the employees. Therefore, my advice is to pay it on the gross salary.
Madhu.T.K
From India, Kannur
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