basic wage interpreted differently by PF


From: Labour Laws Institute <

Subject: RE: [HRD] PF contribution on monthly gross (Including All Allowances).To:
Special leave petitions including Appeal (Civil) No.(s) 8781-8782 filed by Surya Roshni & Others (dt.13-7-2012) pertaining to various allowances whether wages to attract employees provident fund contributions are pending for final disposal by the Supreme Court of India. The Employees’ Provident Fund Organization is a party to the appeals and very well aware that the subject matter is sub-judiced. Besides that on splitting of wages, the EPFO after losing the battle at four forms including Punjab & Haryana High Court (2011 Labour Law Reporter 943) has filed special leave petition which is also pending before the Supreme Court hence this part is
also sub-judice. The Circular dated 30-11-2012 as issued by EPFO simply reiterates the legal provisions and nowhere states that all the allowances would attract employees provident fund contributions.
On splitting wages, the EPFO has skipped the judicial interpretation that even the minimum wages can be split into house rent allowance for provident fund contributions (Asstt. Provident Fund Commissioner vs. G4S Security Services, Gurgaon, 2011 LLR 943 (P&H HC) (DB))
The news item as published in one of the leading daily news paper will certainly give a handle to the EPFO authorities to recover contributions on all the allowances.It is better known to the employers that the authorities under the Laws are vested with unrestricted power and a stick is good enough for beating the employers and many a times the plight of an employer is like that of a pigeon thrown to the cats.
In view of the above, the Guide-lines as issued were not called for more so when the subject matter has been pending before the Supreme Court.
It is pertinent to state that appraise the latest position with regard to provident fund contributions on allowances.
Hereinbelow are the extracts of Order dated 11-10-2012 where the EPF Appellate Tribunal has dealt with some of common allowances for attracting EPF contributions.
In an appeal, filed by M/s. Supreme Industries Ltd.-the appellant, an important point arose for consideration pertains to various allowances which are being paid by the appellant to its employees.
The grievance of the Employees’ Provident Fund Organisation has been that the appellant (employer) has bifurcated the salary into various allowances which has resulted in lower contribution of the provident fund of the employees. Hence, an enquiry was held under section 7-A of the Act wherein the Assessing Authority held that the various allowances as mentioned hereinafter, in seriatim, will be forming part of wages attracting EPF contributions.
Being aggrieved by the order of the Assessing Authority, the appellant-The Supreme Industries filed an appeal (ATA No.383(8) 2009) before the Employees’ Provident Fund Appellate Tribunal. The Appellate Authority in its order dated 11-10-2012 has considered the provisions of section 6 of the Act regarding allowances to be or not to be as component of basic wages and has dealt all the impugned allowances, in seriatim, with supporting reasons as under:
i) Leave Encashment : Supreme Court, in the case of Manipal Academy of Higher Education Vs Provident Fund Commissioner 2008 LLR 243 (SC), has held that the amount paid towards leave encashment would be excluded from the purview of ‘basic wages’. Hence, the EPF Tribunal has held that the impugned order under section 7A passed by the concerned authority is legally incorrect.
ii) Leave Travel Allowance : Normally, this facility is given by the employer to its employees with monitory concession to visit their home town or any other place for leisure or relaxation. It is never given on monthly basis along with wages. Hence, such an allowance cannot be treated as part of basic wages.
iii) Medical Allowance : Since it is given to all staff members, it would be treated as a part of basic pay/wages.
iv) Basic salary : It attracts EPF contribution as per applicability.v) Shift Allowance : This allowance is not paid to all the employees working in the shifts other than night shift. Hence, as per law settled in ‘Bridge and Roof’ case, such allowance shall not constitute a part of basic wages.
vi) Special Allowance : This allowance, paid by the employer/appellant, is not given to the employees as a part of any contract of employment or settlement. Therefore, it cannot be said that it is earned by the employees as a part of salary.
vii) Tribal Allowance : This allowance is not payable to all the employees who are working in the non-tribal or tribal area. It is paid purely at the sweet will of the employer and not under any contract of employment or settlement. It is payable only to a particular category of employees. Therefore, it cannot constitute wages earned by the employees while in service.
viii) Conveyance Allowance: This allowance is paid purely at the sweet will of the employer and not under any contract of employment or settlement. It is not payable to all the employees. Therefore, it cannot be said to have been earned by the employees as a part of their basic wage.
ix) Education Allowance : As it is given to all the employees, it would be a part of basic wages.x) Dearness
Allowance : In the instant case, the wages payable to the employees is over and above the minimum wages admissible to them, therefore, it should not be considered as a part of basic wage.
xi) Good Work Reward : To treat good work reward as a part of basic wages is wrong and not sustainable and the reliance of the EPE Authority upon the case of DCL Shriram Consolidate Ltd. Vs RPFC 1998 LLR 532 (Raj. H.C.) 396 is not appropriate in view of the fact that this case was not decided by the Hon’ble High Court of Rajasthan on merits.
Accordingly, the allowances which are not paid universally, necessarily, ordinarily and to all the employees would not attract the contributions as per provisions of the Act. Hence, the appeal is allowed by the Appellate Tribunal directing the EPF Authority to make calculations of the payable contribution in accordance to section 6 of the Employees’ Provident Funds & Misc. Provisions Act.
EditorLabour Law Reporter
From: [] On Behalf Of F IsraelSent: 11 December 2012 10:29To:
Subject: [HRD] PF contribution on monthly gross (Including All Allowances).Dear Friends, Pl find attached press note released in Times of India dated today.   Regards, F. ISRAEL INBARAJGroup Manager – HR
Aditya Birla Nuvo Limited, Bangalore – 562 106.

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