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Each & Every Employer will have to be 100% statutory compliant w.r.t. all labour laws including but not limited to The Employees Provident Funds & Miscellaneous Provisions Act 1952, Minimum Wages Act 1948, Bonus Act 1965, Employee State Insurance Act 1948 and all other labour laws. Decisions of recent judgements w.r.t. PF, ESIC, Minimum Wages needs to be considered carefully before reviewing existing salary structure and devising new salary structure with the intention to be 100% statutory compliant of labour laws and also satisfy one of the stake holder i.e. employee which are the back bone of any trade & industry.


Decision of Hon. Supreme Court in the case of   Surya Roshni Ltd. & Others in the Civil Appeal No. NO(s). 39653966 of 2013, 39693970 of 2013, 39673968 of 2013 will be the landmark judgement in the history of labour law and on account of the said judgement, whole of the trade & industry have to revisit salary structure and recompute PF liability on account of employer’s contribution and employee’s contribution.

It is important to analyze the basis of PF contribution. Hon. Supreme Court held in the aforesaid case that:

Quote :

Applying the aforesaid tests to the facts of the present appeals, no material has been placed by the establishments to demonstrate that the allowances in question being paid to its employees were either variable or were linked to any incentive for production resulting in greater output by an  employee and that the allowances in question were not paid across the board to all employees in a particular category or were being paid especially to those who avail the opportunity. In order that the amount goes beyond the basic wages, it has to be shown that the workman concerned had become eligible to get this extra amount beyond the normal work which he was otherwise required to put in. There is no data available on record to show what were the norms of work prescribed for those workmen during the relevant period. It is therefore not possible to ascertain whether extra amounts paid to the workmen were in fact paid for the extra work which had exceeded the normal output prescribed for the workmen. The wage structure and the components of salary have been examined on facts, both by the authority and the appellate authority under the Act, who have arrived at a factual conclusion that the allowances in question were essentially a part of the basic wage camouflaged as part of an allowance so as to avoid deduction and contribution accordingly to the provident fund account of the employees. There is no occasion for us to interfere with the concurrent conclusions of facts. The appeals by the establishments therefore merit no interference. Conversely, for the same reason the appeal preferred by the Regional Provident Fund Commissioner deserves to be allowed.

Un Quote :

In other words, PF contribution will be on total salary excluding HRA, bonus, incentive, commission, overtime but will include allowances or any other payment included in any other head which is paid across the board, grade etc.

It will have great impact on employer as well as employee, since employer will have to contribute more amount towards the provident fund than that of earlier and employees also will have to contribute more amount, therefore, there will be reduction in net pay. Though, there is a concept of salary as “Cost to the Company”, but in general most of the employees consider net pay as salary which will have the negative impact.

Though, there is a provision of PF contribution on maximum salary of Rs. 15,000/- per month under Section 26(A) of The Employees’ Provident Fund Scheme, most of the employers generally deduct the PF on total basic, DA, etc. but now they will have to deduct on total salary except exclusions as held in above judgement.

Perhaps, now most of the employer will have no other option but to choose contribution to PF on maximum salary of Rs. 15,000/- per month. It is important to appreciate the following provision:

1. Employees drawing more than Rs.15,000/- pm:

a. Can an employee who is already a member of the Provident Fund Scheme opt out of the Scheme when his salary crosses the ceiling of Rs.15,000/- per month?

No.  An employee whose salary crosses Rs.15,000/- per month does not have the option of opting out of the Scheme. If his salary is more than Rs.15,000/- at the time of taking up an employment he can opt out and remain an “excluded employee” under the Scheme.  “Once covered always covered”.

b. Can an employee who is already a member of the Scheme drawing more than Rs.15,000/- p.m. opt out of the Scheme if he changes his employer?

No. Once an employee has joined the Scheme, he will remain covered throughout his career.

c. Has an employee the option of limiting his contribution to PF only on the ceiling amount of Rs.15,000/-?

Yes. Section 26A of the said scheme provides that


(1) A member of the Fund shall continue to be member until he withdraws under paragraph 69 the amount standing to his credit in the Fund or is covered by a notification of exemption under section 17 of the Act or an order of exemption under paragraph 27 or paragraph 27A.

(2) Every member employed as an employee other than an excluded employee, in a factory or other establishment to which this Scheme applies, shall contribute to the Fund, and the contribution shall be payable to the Fund in respect of him by the employer. Such contribution shall be in accordance with the rate specified in paragraph 29:

Provided that subject to the provisions contained in sub-paragraph (6) of paragraph 26 and [in paragraph 27], or sub-paragraph (1) of paragraph 27- A, where the monthly pay of such a member exceeds fifteen thousand rupees the contribution payable by him, and in respect of him by the employer, shall be limited to the amounts payable on a monthly pay of fifteen thousand rupees including dearness allowance, retaining allowance (if any) and cash value of food concession.

Un Quote 

Also, the Hon. Supreme Court was not required to specifically comment on the aspect that if the salary for PF contribution already exceeded statutory wage obligation of Rs 15,000 per month, whether the employers will be required to contribute on the higher amount. In this context, in another Hon. Supreme Court ruling in the case of Marathwada Gramin Bank [AIR 3567 SC (2011)], it was held that employers cannot be compelled to contribute beyond the statutory liability.

2. House Rent Allowance: 

In view of the judgment of the Supreme Court, should Provident Fund contribution be deducted on the HRA paid to the employees?

No. The definition of basic wages as per Section 2 (b) of the Act for the purpose contribution of provident fund specifically excludes HRA along with a host of others including Dearness Allowance.  However, in order to include the latter for PF, Section 6 of the Act specifically requires the employer to deduct PF contribution on Special Allowance, the justification being ‘universal’ applicability. HRA has not been sought to be included in the definition of wages through Section 6 also. Even in the portion of the judgment in Bridge & Roof of the Supreme Court quoted in the present judgment seems to justify the position that HRA is not includible in basic wages for PF contribution. In the case of HRA like in the case of cash value of food universality also does not matter.

To conclude, PF contribution will be on Total Salary excluding HRA, Bonus, Commission, Incentive, Overtime or such payment, where employee will have to do something more to get such amount and it will not be the same across on the board, grade category etc. but can be restricted maximum on Rs. 15,000/- per month per employee.  

While there are still certain areas (e.g. retrospective applicability of the SC judgement, impact on other retiral payment, etc.) which warrant further deliberation, establishments may start re-evaluating their employee compensation policies and documentation in this regard to ensure compliances with the regulations under the PF Act.

This is especially relevant in the context that the PF department has already issued a circular directing its field officers to utilise this ruling in defending other similar cases and taking necessary action in view of this judgement.


State Govt notifies minimum wages for the period January to June and July to December for different zone and different types of industries. Generally it is differently for Type of Industry / Type of Scheduled Employment and further specified into Skilled, Semi-Skilled, Un-Skilled. Such rates are specified separately for different zones namely Zone I, Zone II, Zone III. Different rates are specified for different industries namely  Advocate and Attorney, Automobile Repairing, Bakeries, Canteen & Clubs, Card Board Boxes, Cashew Processing, Cement & Cement Based Industry, Chemical Fertilizers, Construction of Roads/Buildings, Cotton Ginning & Pressing, Cycle Mechanic Works Shops, Dairy,  Dispensary, Drugs & Pharmaceuticals, Dyes & Chemicals , Eatable Tobacco, Engineering Industry, Exercise Books, Fountain Pen, Glass Bulb, Glass Industry,  Hair Cutting Saloon, Handloom, Hospital, Hotel & Restaurants, Ice & Cold Drinks, Laundry, Liquor Industries, Oil Mill , Optical Frames, Paints and Varnishes, Paper & Paper Board, Potteries, Stable (Premises wherein Buffaloes or Cows are kept), Printing Press, Public Motor Transport, Readymade Garments, Rice, Flour or Dal Mill, Rubber Balloon, Rubber Industry, Saw Mills, Seepz, Shops & Commercial Establishments, Soaps & Cosmetics, Silver Industry, Steel Furnitures, Sweeper & Scavengers, Tanneries & Leather, Utensils, Gram Panchayat, Watch Straps, Wooden Furniture, Wooden Photo Frames, Tobacco (Bidi), Vita & Kaule Industry (Brick & Roof Tiles Manufacturing), Salt Pan Industry, Cinema Exhibition, Agriculture, Onion  Further, minimum wages are declared separately as mentioned above and further categorized into

  • Basic
  • HRA (5% of the Basic)
  • Special Allowance

Even if, the total salary may be much higher than that of Basic + Special Allowance, labour department insist to pay min wages i.e. Basic + Special Allowance in accordance with such notifications. Therefore, it is recommended to structure the salary accordingly to avoid unnecessary dispute with the department.

It is important to also appreciate the decisions of Hon Supreme Court in the following cases, wherein it has been held that total wages has to be considered as compliance of minimum wages and not only the Basic etc.

  • 2002 (2) Labour Law Journal 1075

Case : Management of Ramkrishna Pharmaceuticals Vs. State Authority under Minimum Wages Act

  • 1999 (2) Current Labour Report 799

Case : Harilal Doshi Vs Maharashtra General Kamgar Union, Mumbai High Court

  • 1999 (2) Current Labour Report 537

Case : Air Freight Limited Vs State of Karnataka, Supreme Court

Further, it is important to appreciate the decision of Hon. Supreme Court in the case of Hindustan Sanitaryware vs The State of Haryana, following ratios were considered in the decision:

18. The upshot of the above discussion is :

(a) The prohibition of segregation of wages into components in the form of allowances in the Notification is impermissible;

(b) The security inspector/ security officer/ security supervisor cannot be included in the Notification; 26

(c) Trainees who are employed without payment of any reward cannot be covered by the Notification;

(d) Categorization of unskilled employees as semi- skilled and semi-skilled as skilled on the basis of their experience is ultra vires.

(e) Fixing the training period for one year is beyond the jurisdiction of the Government.


Employees’ State Insurance (Central) (Amendment) Rules, 2019 is in the draft form and after lifting Code of Conduct on account of Parliamentary Election, notification will be issued and these rules may come in existence. Draft Rules are already put on the website. According to Rule 51 of the Employees’ State Insurance (Central) Rules, 1950

51. Rate of contribution. — The amount of contribution for a wage period shall be in respect of — 

(a) employer’s contribution, a sum (rounded to the next higher rupee) equal to four percent of the wages payable to an employee ; and

(b) employee’s contribution, a sum (rounded to the next higher rupee) equal to one percent of the wages payable to an employee. 

In other words, ESIC contribution will be as follows :

Contribution by Existing After Issuance of Notification
Employer 4.75% 4%
Employee 1.75% 1%

Needles to say, when total salary of any employee crosses Rs. 21,000/- per month then no ESIC contribution will have to be made either by employer or employee.


In accordance with The Maharashtra Workmen’s Minimum House Rent Allowance Act 1983, minimum HRA has to be paid to the extent of 5% of wages payable or Rs. 20 per month whichever is higher. In other words, House Rent Allowance should be min 5% of total wages. In other words, for the calculation of HRA, the basis should be all the wages payable other than HRA, which includes all allowances but excludes Bonus, Commission, Incentive, Over Time, or any other payment which is based on something extra to be done to get the same amount.

However, computation of Income from salary Tax under Section 10(13A) of Income Tax Act 1961 read with Rule 2A of Income Tax Rules 1961 provides one of the condition for claiming exemption on account of HRA from taxable salary to the extent of 50% of basic + Dearness Allowance in metro cities or 40% of Basic + Dearness Allowance in other cities.

HRA is also excluded for the calculation of contribution to provident fund.

To conclude, existing salary structure needs to be revisited considering the above aspects for achieving both objectives:  

  • To be Statutory Compliant under the Labour Laws
  • To ensure better net pay to the employees

However, The Judgment of the Supreme Court on the issue of PF contribution once again brought out the need for better alignment of the priorities of the Legislature and the Judiciary.  The Judgment is silent on the effect of the interpretation on those drawing salaries of more than Rs.15,000/- as it can give rise to multiple interpretations.  It also does not speak whether the Order would have retrospective effect. These issues are bound to find their way back into the apex Court before long.  Ease of doing business and reducing the time and cost of avoidable litigations should also be as important a priority as meting out social justice for both the branches of governance.  

In view of the above, central government should make the necessary efforts to amend the labour laws with object of ease of doing business. 

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  1. Nisha says:

    Hi Sir,

    Can you please tell me if the organization does not want to provide HRA then what would be the salary structure?
    IS HRA is mandatory for an organization to provide it?
    Please answer my query what structure one can implement?

  2. Adil says:

    So now the companies can devise salary structure without HRA?

    While in Maharashtra 5% of Basic HRA is mandatory then it will be en extra cost to company?

    The salary structure will be
    Special Allowance
    will that be considered as compliance in all respect.?

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May 2024