Provident Fund (EPF) contribution on certain allowances

chandan bagaria says:

In all these five writ petitions, the common question arises for consideration is regarding the true meaning of ‘basic wage’ as per Section 2(b) of the PF Act, they were grouped together and a common order is passed against all the petitioner.
Definition of Basic Wages in EPF Act,1952.
“Basic wages” means all emoluments which are earned by an employee while on duty or on leave or on holidays with wages in either case 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 to say, 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;
This is the literal explanation of Basic Wage as per EPF Act, 1952. The plain reading of the text suggest that Basic Wage = [Wages + Cash paid or payable as per terms of the contract]
Definition of Wages as per ESI Act.

“wages” means all remuneration paid or payable in cash to an employee, if the terms of the contract of employment, express or implied, were fulfilled and includes 22[any payment to an employee in respect of any period of authorised leave, lock-out, strike which is not illegal or lay-off and] other additional remunera¬tion, if any, 23[paid at intervals not exceeding two months], but does not include—

(a) Any contribution paid by the employer to any pension fund or provident fund, or under this Act;

(b) Any travelling allowance or the value of any traveling concession;

(d) Any gratuity payable on discharge.

Wages include other additional remuneration paid at intervals not exceeding two months wages. It is question of fact in each case whether sales commission and incentive are payable at intervals not exceeding two months (Handloom House Ernakulam vs Reg. Director, ESIC, 1999). Travelling allowance paid to employees is to defray special expenses entitled on him by nature of his employment. It does not form part of wages as defined under section 2(22) of the ESI Act. Therefore, employer is not liable to pay contribution on travelling allowances.
Defination of wages under Payment of Wages Act
“salary or wage” means all remuneration (other than remuneration in respect of overtime work) capable of being expressed in terms of money, which would, if the terms of employment, express or implied, were fulfilled, be payable to an employee in respect of his employment or of work done in such employment and includes dearness allowance (that is to say, all cash Payments, by whatever name called, paid to an employee on account of a rise in the cost of living), but does not include–
(i) Any other allowance which the employee is for the time being entitled to;
(ii) The value of any house accommodation or of supply of light, water, medical attendance or other amenity or of any service or of any concessional supply of foodgrains or other articles;
(iii) Any travelling concession;
(iv) Any bonus (including incentive, production and attendance bonus);
(v) Any contribution paid or payable by the employer to any pension fund or provident fund or for the benefit of the employee under any law for the time being in force;
(vi) Any retrenchment compensation or any gratuity or other retirement benefit payable to the employee or any ex gratia payment made to him;
(vii) Any commission payable to the employee.
Explanation.–Where an employee is given in lieu of the whole or part of the salary or wage payable to him, free food allowance or free food by his employer, such food allowance or the value of such food shall, for the purpose of this clause, be deemed to form part of the salary or wage of such employee;
Definition given under wages act also shall not be referred, when there is a specific definition available for the purpose.
Keeping in mind that the different definition of Wages under the different Act of Labour laws in the country are specific to serve the purpose of the Act for which the act has been enacted. It is rightly so that the definitions and interpretation of the sister law or the English law or the normal practice and standards and usage are followed to find the remedy in a case. But in the present case of Reynolds Pens India Pvt. Ltd. vs. Regional Provident Fund Commissioner (Madras High Court) the matter is attributed to the contribution towards Provident Fund. The subject comes within the purview of the Employees Provident Fund Act, 1952 which has been specifically passed by the legislature to deal with the matters of Provident Fund. As per rule of interpretation also it is suggested that the law and enactments that are specific to the situation should be read before the laws that are only supportive and distant from the fact of the case. Hence the conclusion that can be derived is that when there is a definition of “Basic Wages” in the Employees Provident Fund Act, 1952. That particular definition should be taken into consideration rather than the definition of any other law like ESI Act or Bonus Act or any other law for the time being in force.
The Madras High Court in Reynolds Pens India Pvt. Ltd. vs. Regional Provident Fund Commissioner (Madras High Court) aforesaid case has held that certain allowances such as conveyance, educational allowances, food concession, medical allowance, special holidays, night shift incentive, city compensatory allowances etc. should be treated as part of basic wages under the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (‘EPF Act’.) and accordingly, provident fund contributions should be remitted on such allowances. The decision of the Honourable Madras High Court will jeopardise the scheme of Provident Fund in the country. The various allowances that are paid to the employee are dependent on various factors like production, profit, performance of the employee, overtime work etc. This are independent variables in a pay package and differ from employee to employee and wage period to wage period. Scheme of Provident Fund is regulated as per the act. And according to section 6 of the EPF Act Contribution of specified percentage (At present) 12.5% of Basic Wage, Dearness Allowance and Retaining Allowance should be contributed by the employer. Dearness allowance is determined by CII as a percentage of Basic Wage for every quarter. If the Basic Wage which is the fixed base in the pay package will fluctuate for each wage period and for each employee, it will become a gigantic task to maintain the information accurately and efficiently. Moreover the decision of the Honourable High court has not given us any exclusive definition of the term ‘Basic wage’ . The nomenclature and nature of the pay that shall form part of the Basic Wage has not been exclusively defined. The use of the abbreviation “etc” has put the employers in the boots of the legislature to decide which pay will be included in the Basic Wage and what shall be excluded. Hence the conclusion is that the Contribution towards provident fund is dependent on the Basic wage and is a dependent variable. This cannot be matched and made dependent on other dependent variables like allowances of the pay package.
To put forth the argument that ‘basic wages’ do not include the allowances offered by the petitioner to their employees, reliance was placed on following rulings:
• M/s Bridge and Roofs Co Ltd vs Union of India and others
• Manipal Academy of Higher Education vs Provident Fund Commissioner
• RPFC vs Wipro Limited
• Gordon Woodroffe Ltd, Madras vs RPFC
• APFC vs G4S Security Services (India) Ltd
• Burmah Shell Oil Storage and Distributing Co Ltd vs RPFC
• Gujarat Cypromet Ltd vs APFC
Ruling Of Madhya Pradesh High Court In The Case of Montage Enterprise Pvt. Ltd. (Petitioner) vs. EPF & Others: The similar case has been filed in Madhya Pradesh High Court where the decision of the court is contested in the Tribunal Bench of Gwalior and the case is not yet definitive.
The issue raised here are not purely legal issues, but mixed question of fact and law involved. Attacking the order of the Tribunal, Mr.A.L.Somayaji, learned Senior Counsel submitted that the authorities exercising power under Section 7A cannot on their own held that the special allowance can be treated as dearness allowance. In this context, the learned Senior Counsel referred to a judgment of a division bench of this Court in Regional Commissioner, EPF, Tamil Nadu and Pondicherry Vs. Management of Southern Alloy Foundries (P) Ltd. Reported in 1982 (1) LLJ 28. Reliance was placed upon the following passage found in paragraph 2 which reads as follows:
“2….Needless to say that an officer like the appellant has no power to deem something to be something else which it is not, it being the prerogative only of the Legislature….”
Therefore, the order including special allowance as basic wage passed by the authority and confirmed by the Tribunal was erroneous. Hence any kind of allowance or production bonus as discussed in Harihar Polyfibres vs Regional Director case shall not form part of the Basic wage.
However the petitioners’ stand that they are seeking this court to give an authoritative ruling by holding certain allowances will not constitute wages under Section 2(b), then it will be binding on the authorities and that the employers can arrange their affairs based on the said ruling.
The said request may not be entertained by the court. The court exercising powers under Article 226 of the Constitution of India cannot clutch on to a jurisdiction which it does not have. The limited power of the judicial review can be exercised only when statutory authorities make an order and still it required an appropriate correction by way of judicial review. The petitioners cannot construe the High Court exercising power under Article 226 as an advance ruling authority as provided in some taxing statutes. In fact, by the exercise of power under Article 226. It is preciously for this reason, the authorities have been created under the Act and also a judicial appellate Tribunal has been constituted. The High Court can exercise jurisdiction in relation to the territories within which the cause of action, wholly or in part, arises for the exercise of such power. Hence the opinion of the court is very much right that when statutory authorities make an order and still it requires judicial review than the court can give his Judgement.
Based on the above facts it appears that decision of the Honourable High Court do not try to provide a remedy to the situation. It would be conducive to judicial discipline in maintaining certainty and uniformity in administering the law. The dismissal of the writ petition by the court and giving a inclusive solution to the question of law and fact will not resolve the matter. The employers petition should be reviewed again and a decision that can be accurately implemented is desired.

The opinion of the members in this regard will give better judgement of the case.
Ca Chandan Bagaria.

August 24, 2011 at 8:03 pm

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chandan bagaria says:

In all these five writ petitions, the common question arises for consideration is regarding the true meaning of ‘basic wage’ as per Section 2(b) of the PF Act, they were grouped together and a common order is passed against all the petitioner.
Definition of Basic Wages in EPF Act,1952.
“Basic wages” means all emoluments which are earned by an employee while on duty or on leave or on holidays with wages in either case 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 to say, 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;
This is the literal explanation of Basic Wage as per EPF Act, 1952. The plain reading of the text suggest that Basic Wage = [Wages + Cash paid or payable as per terms of the contract]
Definition of Wages as per ESI Act.

“wages” means all remuneration paid or payable in cash to an employee, if the terms of the contract of employment, express or implied, were fulfilled and includes 22[any payment to an employee in respect of any period of authorised leave, lock-out, strike which is not illegal or lay-off and] other additional remunera¬tion, if any, 23[paid at intervals not exceeding two months], but does not include—

(a) Any contribution paid by the employer to any pension fund or provident fund, or under this Act;

(b) Any travelling allowance or the value of any traveling concession;

(c) Any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment; or

(d) Any gratuity payable on discharge.

Wages include other additional remuneration paid at intervals not exceeding two months wages. It is question of fact in each case whether sales commission and incentive are payable at intervals not exceeding two months (Handloom House Ernakulam vs Reg. Director, ESIC, 1999). Travelling allowance paid to employees is to defray special expenses entitled on him by nature of his employment. It does not form part of wages as defined under section 2(22) of the ESI Act. Therefore, employer is not liable to pay contribution on travelling allowances.
Defination of wages under Payment of Wages Act
“salary or wage” means all remuneration (other than remuneration in respect of overtime work) capable of being expressed in terms of money, which would, if the terms of employment, express or implied, were fulfilled, be payable to an employee in respect of his employment or of work done in such employment and includes dearness allowance (that is to say, all cash Payments, by whatever name called, paid to an employee on account of a rise in the cost of living), but does not include–
(i) Any other allowance which the employee is for the time being entitled to;
(ii) The value of any house accommodation or of supply of light, water, medical attendance or other amenity or of any service or of any concessional supply of foodgrains or other articles;
(iii) Any travelling concession;
(iv) Any bonus (including incentive, production and attendance bonus);
(v) Any contribution paid or payable by the employer to any pension fund or provident fund or for the benefit of the employee under any law for the time being in force;
(vi) Any retrenchment compensation or any gratuity or other retirement benefit payable to the employee or any ex gratia payment made to him;
(vii) Any commission payable to the employee.
Explanation.–Where an employee is given in lieu of the whole or part of the salary or wage payable to him, free food allowance or free food by his employer, such food allowance or the value of such food shall, for the purpose of this clause, be deemed to form part of the salary or wage of such employee;
Definition given under wages act also shall not be referred, when there is a specific definition available for the purpose.
Keeping in mind that the different definition of Wages under the different Act of Labour laws in the country are specific to serve the purpose of the Act for which the act has been enacted. It is rightly so that the definitions and interpretation of the sister law or the English law or the normal practice and standards and usage are followed to find the remedy in a case. But in the present case of Reynolds Pens India Pvt. Ltd. vs. Regional Provident Fund Commissioner (Madras High Court) the matter is attributed to the contribution towards Provident Fund. The subject comes within the purview of the Employees Provident Fund Act, 1952 which has been specifically passed by the legislature to deal with the matters of Provident Fund. As per rule of interpretation also it is suggested that the law and enactments that are specific to the situation should be read before the laws that are only supportive and distant from the fact of the case. Hence the conclusion that can be derived is that when there is a definition of “Basic Wages” in the Employees Provident Fund Act, 1952. That particular definition should be taken into consideration rather than the definition of any other law like ESI Act or Bonus Act or any other law for the time being in force.
The Madras High Court in Reynolds Pens India Pvt. Ltd. vs. Regional Provident Fund Commissioner (Madras High Court) aforesaid case has held that certain allowances such as conveyance, educational allowances, food concession, medical allowance, special holidays, night shift incentive, city compensatory allowances etc. should be treated as part of basic wages under the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (‘EPF Act’.) and accordingly, provident fund contributions should be remitted on such allowances. The decision of the Honourable Madras High Court will jeopardise the scheme of Provident Fund in the country. The various allowances that are paid to the employee are dependent on various factors like production, profit, performance of the employee, overtime work etc. This are independent variables in a pay package and differ from employee to employee and wage period to wage period. Scheme of Provident Fund is regulated as per the act. And according to section 6 of the EPF Act Contribution of specified percentage (At present) 12.5% of Basic Wage, Dearness Allowance and Retaining Allowance should be contributed by the employer. Dearness allowance is determined by CII as a percentage of Basic Wage for every quarter. If the Basic Wage which is the fixed base in the pay package will fluctuate for each wage period and for each employee, it will become a gigantic task to maintain the information accurately and efficiently. Moreover the decision of the Honourable High court has not given us any exclusive definition of the term ‘Basic wage’ . The nomenclature and nature of the pay that shall form part of the Basic Wage has not been exclusively defined. The use of the abbreviation “etc” has put the employers in the boots of the legislature to decide which pay will be included in the Basic Wage and what shall be excluded. Hence the conclusion is that the Contribution towards provident fund is dependent on the Basic wage and is a dependent variable. This cannot be matched and made dependent on other dependent variables like allowances of the pay package.
To put forth the argument that ‘basic wages’ do not include the allowances offered by the petitioner to their employees, reliance was placed on following rulings:
• M/s Bridge and Roofs Co Ltd vs Union of India and others
• Manipal Academy of Higher Education vs Provident Fund Commissioner
• RPFC vs Wipro Limited
• Gordon Woodroffe Ltd, Madras vs RPFC
• APFC vs G4S Security Services (India) Ltd
• Burmah Shell Oil Storage and Distributing Co Ltd vs RPFC
• Gujarat Cypromet Ltd vs APFC
Ruling Of Madhya Pradesh High Court In The Case of Montage Enterprise Pvt. Ltd. (Petitioner) vs. EPF & Others: The similar case has been filed in Madhya Pradesh High Court where the decision of the court is contested in the Tribunal Bench of Gwalior and the case is not yet definitive.
The issue raised here are not purely legal issues, but mixed question of fact and law involved. Attacking the order of the Tribunal, Mr.A.L.Somayaji, learned Senior Counsel submitted that the authorities exercising power under Section 7A cannot on their own held that the special allowance can be treated as dearness allowance. In this context, the learned Senior Counsel referred to a judgment of a division bench of this Court in Regional Commissioner, EPF, Tamil Nadu and Pondicherry Vs. Management of Southern Alloy Foundries (P) Ltd. Reported in 1982 (1) LLJ 28. Reliance was placed upon the following passage found in paragraph 2 which reads as follows:
“2….Needless to say that an officer like the appellant has no power to deem something to be something else which it is not, it being the prerogative only of the Legislature….”
Therefore, the order including special allowance as basic wage passed by the authority and confirmed by the Tribunal was erroneous. Hence any kind of allowance or production bonus as discussed in Harihar Polyfibres vs Regional Director case shall not form part of the Basic wage.
However the petitioners’ stand that they are seeking this court to give an authoritative ruling by holding certain allowances will not constitute wages under Section 2(b), then it will be binding on the authorities and that the employers can arrange their affairs based on the said ruling.
The said request may not be entertained by the court. The court exercising powers under Article 226 of the Constitution of India cannot clutch on to a jurisdiction which it does not have. The limited power of the judicial review can be exercised only when statutory authorities make an order and still it required an appropriate correction by way of judicial review. The petitioners cannot construe the High Court exercising power under Article 226 as an advance ruling authority as provided in some taxing statutes. In fact, by the exercise of power under Article 226. It is preciously for this reason, the authorities have been created under the Act and also a judicial appellate Tribunal has been constituted. The High Court can exercise jurisdiction in relation to the territories within which the cause of action, wholly or in part, arises for the exercise of such power. Hence the opinion of the court is very much right that when statutory authorities make an order and still it requires judicial review than the court can give his Judgement.
Based on the above facts it appears that decision of the Honourable High Court do not try to provide a remedy to the situation. It would be conducive to judicial discipline in maintaining certainty and uniformity in administering the law. The dismissal of the writ petition by the court and giving a inclusive solution to the question of law and fact will not resolve the matter. The employers petition should be reviewed again and a decision that can be accurately implemented is desired.

The opinion of the members in this regard will give better judgement of the case.
Ca Chandan Bagaria.


August 24, 2011 at 8:03 pm
Ravindra Khisti says:

It is nowhere mentioned the limit of Rs 6500/- is applicable. Employer can take a stand that maximum limit applicable is Rs 6500/- if Basic wages are less than Rs 6500/- then PF needs to be deducted on all other components. If basic salary iself exceeding Rs 6500/- then on other allowances need nit be considered


August 23, 2011 at 12:02 pm

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