Earlier through our Blog dated 1st March 2019 [Supreme Court Judgement-Provident Fund to be Paid on Allowances or Not] we have apprised you of the Hon’ble Supreme Court Judgment in the subject matter. Vide that Judgment the Hon’ble Supreme Court has mandated that all allowances that are not part of any production / productivity / for meritorious reasons – shall form part of basic wages and hence subject to Provident Fund contribution. The other exemption given here from scope of Basic wages is HRA or House Rent Allowance.
The direct bearing would be on employees whose present monthly basic is less than INR 15,000 per month and they were getting payment under other heads like Supplementary / Special allowance/Conveyance allowance/Medical allowance etc. Wages for Provident Fund compliance were earlier (by generally accepted and followed industry practice) being taken on Basic wages only. However, now the other regular heads except HRA will also have to be included while calculating wages for Provident Fund compliance. This will lead to higher Provident Fund contribution by employee leading to lower net take home salary and simultaneously higher Provident fund contribution by employer as well as higher administrative charges payable by employer
However If Basic Wages and other allowances collectively are more than 15,000/- per month than the employer has an option to limit wages for provident fund contribution to INR 15,000/- per month
We suggest that the changes be made in calculation of wages for Provident Fund contribution with effect from March salary computations (since most of the calculations for February have already been rolled out).
The judgement will not affect employee or employer where present wages for provident fund contribution is presently more than INR 15,000/- per month since for PF compliance threshold of monthly PF wages of INR 15,000/- per month should be achieved and beyond that is completely between the employer and employee.
Please note that the judgement delivered is all about as to which all components of pay would constitute basic wages as per The Employees Provident Fund and Miscellaneous Provision Act 1952. The bigger implication of this judgment is that though this has been delivered on 28th February 2019, it is applicable since the inception of the Act. This may create a big financial exposure to the companies who have contributed to provident fund on Basic component of salary , and basic component is below the threshold limit as being defined under The EPF Act 1952 from time to time, since the inception/applicability of the act on the company.
Regards, Anupam Mittal
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