Most of the establishments consider Basic wages and Dearness Allowance for PF contribution by the employee and the employer, since The EPF Act is in force. (more than 65 years.) The Honorable Supreme Court has given a decision on 28-02-2019 about which allowances are to be included in addition to Basic + DA, in PF wages for contribution by Employee as well as Employer. The following allowances are excluded.

1-House Rent Allowance

2-Any allowance paid as reimbursement of expenses such as washing, canteen, Petrol reimbursement on production of bills, Night shift allowance for working in night shift, Overtime, Production incentive for increasing productivity based on incentive scheme, any variable allowance payable only to particular category of the employees etc.

3-Leave encashment, Bonus and Gratuity payment.

The allowances paid at fixed rate, such as Education, Conveyance, Telephone, Special allowance etc, for which no bill are to be produced, will now be considered as wages, for PF contribution as per the recent decision of Supreme Court.

As per The EPF and MP Act, 1952, an employee whose salary applicable for PF is more than Rs.15000/- pm and first time covered under The Act, is an Excluded employee. Once an employee is a member of PF, he continues to be a member even if his salary exceeds Rs.15000/- pm.

The employee and / or the employer can restrict their contribution on maximum salary of Rs.15000/- pm as per The Act. However, there are various practices of applying salary limit for PF contribution as mentioned below.

Case 1 – An employee whose Basic + DA is more than Rs.15000/- pm. The employee and the employer both pay PF contribution on Basic + DA without applying salary limit of Rs.15000/- pm. There will be no impact of Supreme Court decision.

Case 2 – An employee whose Basic + DA is more than Rs.15000/- pm. The employee pay PF contribution on Basic + DA without applying salary limit of Rs.15000/- pm. However the employer pay PF contribution applying salary limit of Rs.15000/- pm. There will be no impact of Supreme Court decision.

Case 3 – An employee whose Basic + DA is more than Rs.15000/- pm. The employee and the employer both pay contribution on Basic + DA applying salary limit of Rs.15000/- pm. There will be no impact of Supreme Court decision.

Case 4 – An employee whose present Basic + DA is less than Rs.15000/- pm but after adding admissible allowances as per Supreme Court decision PF wages are more than Rs.15000/-. The illustration of PF contribution at present and on Supreme Court decision is given below.

April 19 Rate Present Days  Paid 30 SC decision  Days Paid 30 Burden Present Days  Paid 5 SC decision Days  Paid 5 Burden
Basic +DA 6000 6000 6000 Excluded 1000 1000  
HRA 30% 1800 1800 1800 300 300  
Conv. 2400 2400 2400 400 400  
Med All 1500 1500 1500 250 250  
Spl All 6000 6000 6000 1000 1000  
Salary pm 17700 17700 17700 2950 2950  
PF Wages 6000 6000 15000 limi 9000 1000 2500 @15000 1500
April 19 Rate Present Days Paid 30 SC decision Days Paid 30 Burden Present Days  Paid 5 SC decision Days  Paid 5 Burden
Emp.PF 720 720 1800 1080 120 300 180
Co. PF 220 220 520 330 37 92 55
Pension 500 500 1250 750 83 208 125

Case 5 – An employee whose present Basic + DA is less than Rs.15000/- pm and also after adding admissible allowances as per Supreme Court decision PF wages are less than Rs.15000/-. The illustration of PF contribution at present and on Supreme Court decision is given below.

April 19 Rate Present Days Paid 30 SC decision Days Paid 30 Burden Present Days  Paid 5 SC decision Days  Paid 5 Burden
Basic +DA 6000 6000 6000 1000 1000
HRA 30% 1800 1800 1800 300 300
Conv. 2400 2400 2400 400 400
Med All 1500 1500 1500 250 250
Spl All 3000 3000 3000 500 500
Salary pm 14700 14700 14700 2450 2450
PF Wages 6000 6000 12900 HRA Excl. 6900 1000 2150 @12900 1500
Emp.PF 720 720 1548 828 120 258 138
PF 220 220 473 253 37 79 42
Pension 500 500 1075 575 83 179 96

In case of 4 & 5 mentioned above, the employee’s take home pay will be reduced to the extent of additional PF contribution and for the employer, CTC will be increased by the same amount. Some employers may try to reduce any allowance to the extent of his additional contribution to avoid CTC rise.

In these two cases, after adding applicable allowances as per Supreme Court decision, PF salary will be restricted to Rs.15000/- pm maximum. However, when such employee’s Basic + DA will be more than Rs.15000/- pm, the PF salary will be as per case 1, 2 or 3 mentioned above, as per the existing practice in the establishment.

The EPFO has not issued any circular mentioning the effective date for implementing the Supreme Court decision. The PF salary limit was increased from Rs.6500/- pm to Rs.15000/- pm from 01 September 2014. If the Supreme Court decision is implemented retrospectively, employee will not be able to pay arrears for 54 months from September 2014 to February 2019.

All the establishments are considering the amount of Basic + DA for calculation of PF contribution, Gratuity and Bonus uptill now. The change in PF contribution will not affect the Gratuity calculations and eligibility under The Payment of Bonus Act,1965.

Supreme Court Decision

Case Citation – Regional Provident Fund Vs Vivekananda Vidyamandir And Others  (Supreme Court of India), Appeal Number : Civil Appeal No(s). 6221 of 2011, Date of Judgement/Order : 28/02/2019

Author Bio

Qualification: Graduate
Company: Agrocel Industries Pvt Ltd.
Location: DADAR MUMBAI, Maharashtra, IN
Member Since: 18 Feb 2019 | Total Posts: 1

More Under Corporate Law

3 Comments

Leave a Comment

Your email address will not be published. Required fields are marked *