Dear professionals,
We are aware that as per EPF amendment in 2014, employees with first-time employment and a salary exceeding 15k are not eligible for EPS. However, as per EPF regulations, salary includes basic + other allowances; therefore, does this 15k limit refer to the basic salary or the Gross pay?
For example, an employee with first-time employment receiving a basic and DA totaling 15k and a Gross pay of 30k, would they be eligible for EPS or not? Please guide me on this.
Thank you.
From India, Madras
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3We are aware that as per EPF amendment in 2014, employees with first-time employment and a salary exceeding 15k are not eligible for EPS. However, as per EPF regulations, salary includes basic + other allowances; therefore, does this 15k limit refer to the basic salary or the Gross pay?
For example, an employee with first-time employment receiving a basic and DA totaling 15k and a Gross pay of 30k, would they be eligible for EPS or not? Please guide me on this.
Thank you.
From India, Madras
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Dear Mr. Madan,
Ceiling limit is based on the "Wage" as defined under the EPF Act.
As per the said Act, in simple terms (if you want to understand as a layman), wage means,
= Gross - (HRA + Variable allowances if any).
From India, Bangalore
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Ceiling limit is based on the "Wage" as defined under the EPF Act.
As per the said Act, in simple terms (if you want to understand as a layman), wage means,
= Gross - (HRA + Variable allowances if any).
From India, Bangalore
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As per EPF and MP Act, basic wages mean the total salary or gross salary. Of this, HRA (house rent allowance) paid to those employees who are required to stay in rented houses is excluded. However, many employers treat it as a blanket exemption and consider gross wages less HRA as the PF qualifying salary. Therefore, if your gross salary without the element of HRA is more than Rs 15,000 and the employee joining does not have a PF account with their previous employment, then they can be excluded from PF coverage in your organization.
From India, Kannur
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From India, Kannur
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@ Madhu T K,
I really appreciate your deep knowledge of Employment law. I have been a fan of your posts for more than a decade. My sincere thanks for your time and efforts.
As per my understanding of Sec 2 [b] of the EPF Act, House Rent Allowance has been specifically excluded from the definition of Basic Wage. The said provision has been reproduced below:
"basic wages" means all emoluments earned by an employee while on duty, or on leave, or on holidays with wages, in accordance with the terms of the contract of employment, and which are paid or payable in cash to him, but does not include:
(i) the cash value of any food concession;
(ii) any dearness allowance (that is, all cash payments by whatever name called paid to an employee on account of a rise in the cost of living), 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;
(iii) any presents made by the employer.
Furthermore, in the case of "Regional Provident Fund Commissioner (II), West Bengal v. Vivekananda Vidyamandir & Others [Civil Appeal No 6221 of 2011]", the Hon'ble Supreme Court has clarified which allowances should be considered as Basic Wage.
Considering the definition along with the ruling from the apex court, it appears to me that the HRA is not a part of Basic Wage.
If I am wrong, I would appreciate it if you could let me know the exact provision (or the judgment) in which it has been mentioned that "HRA is basic wage under the EPF Act." It would help me to correct myself.
Looking forward to your reply.
From India, Bangalore
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I really appreciate your deep knowledge of Employment law. I have been a fan of your posts for more than a decade. My sincere thanks for your time and efforts.
As per my understanding of Sec 2 [b] of the EPF Act, House Rent Allowance has been specifically excluded from the definition of Basic Wage. The said provision has been reproduced below:
"basic wages" means all emoluments earned by an employee while on duty, or on leave, or on holidays with wages, in accordance with the terms of the contract of employment, and which are paid or payable in cash to him, but does not include:
(i) the cash value of any food concession;
(ii) any dearness allowance (that is, all cash payments by whatever name called paid to an employee on account of a rise in the cost of living), 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;
(iii) any presents made by the employer.
Furthermore, in the case of "Regional Provident Fund Commissioner (II), West Bengal v. Vivekananda Vidyamandir & Others [Civil Appeal No 6221 of 2011]", the Hon'ble Supreme Court has clarified which allowances should be considered as Basic Wage.
Considering the definition along with the ruling from the apex court, it appears to me that the HRA is not a part of Basic Wage.
If I am wrong, I would appreciate it if you could let me know the exact provision (or the judgment) in which it has been mentioned that "HRA is basic wage under the EPF Act." It would help me to correct myself.
Looking forward to your reply.
From India, Bangalore
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Dear Madhu sir, Thank you so much for the clarification given. Regards, Madhan S
From India, Madras
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From India, Madras
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True, Srinivas, HRA is excluded from the PF qualifying wages. In Vivekananda Vidya Mandir's case also HRA exclusion has been considered. But when the employers (those who think employee welfare schemes as a burden rather than employee benefits) start including huge amounts of HRA in the salary structure with a view to reducing their burden, there is a chance to review the meaning of HRA. Then the question will be what is HRA? HRA is nothing but an allowance paid to those who reside in rented houses. Then who should get it? Only those who reside in rented houses should get it. How much should be the amount of HRA? It shall vary from person to person, depending upon the category or salary and also the city of posting.
In private organisations, what we see is HRA is given as a component of salary without any reference to whether they reside in a rented house or not. It will not have any direct bearing on the rent they actually pay, it may even be higher than what they actually pay. As such, the HRA will become an allowance 'universally' paid to all employees. We know that the Apex Court has ruled in Bridges and Roofs (India) Ltd Vs Union of India (1963 (2)LLJ 490) that an allowance paid to all employees universally will be part of basic wages. HRA paid to some employees who reside in rented houses for the convenience of commuting to the office shall be excluded but when it is paid to all employees then it will take the form of an allowance universally paid to all employees and then it will attract PF contribution. Not only PF, the gratuity payable at the time of discharge should also be calculated considering this amount. This is my opinion and I have done a lot of research on it for a case on gratuity, the result of which will be available in due course.
The objective of the EPF Act when defining the word "basic wages' was very genuine and at that time they should not have thought that the employers and the Personnel Managers (like US!) who advise the employers would be so meticulous to find out the gaps in the wording in law so that they can escape from statutory liabilities. The legislators would have thought that HRA is paid only to those who are eligible to get it. In private companies where both husband and wife work, both are paid HRA. But they will be residing in the same house. As per the Income Tax Act, HRA is allowed as a deduction only from one person. You can get HRA exemption if you are staying with your parents to whom you pay rent but you will not get exemption if you pay it to your spouse!
From India, Kannur
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In private organisations, what we see is HRA is given as a component of salary without any reference to whether they reside in a rented house or not. It will not have any direct bearing on the rent they actually pay, it may even be higher than what they actually pay. As such, the HRA will become an allowance 'universally' paid to all employees. We know that the Apex Court has ruled in Bridges and Roofs (India) Ltd Vs Union of India (1963 (2)LLJ 490) that an allowance paid to all employees universally will be part of basic wages. HRA paid to some employees who reside in rented houses for the convenience of commuting to the office shall be excluded but when it is paid to all employees then it will take the form of an allowance universally paid to all employees and then it will attract PF contribution. Not only PF, the gratuity payable at the time of discharge should also be calculated considering this amount. This is my opinion and I have done a lot of research on it for a case on gratuity, the result of which will be available in due course.
The objective of the EPF Act when defining the word "basic wages' was very genuine and at that time they should not have thought that the employers and the Personnel Managers (like US!) who advise the employers would be so meticulous to find out the gaps in the wording in law so that they can escape from statutory liabilities. The legislators would have thought that HRA is paid only to those who are eligible to get it. In private companies where both husband and wife work, both are paid HRA. But they will be residing in the same house. As per the Income Tax Act, HRA is allowed as a deduction only from one person. You can get HRA exemption if you are staying with your parents to whom you pay rent but you will not get exemption if you pay it to your spouse!
From India, Kannur
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Calcu. pf Emp.eps.epf sample sheet for HR site..xls
EPF,EPS,EDLI.pp t