Special allowance part of basic wages for PF Calculation: Supreme Court

The Supreme Court of India in Regional Provident Fund Commissioner West Bengal vs Vivekananda Vidayamandir and others on 28th February 2019 held that special allowances paid by an employer to its employees have to be included in “wage” for deduction towards Provident Fund. It includes House Rent Allowance (HRA) also. That means earning salary including HRA and special allowances together up to Rs 15,000 will now be considered as “wage” for purpose of PF deductions. Earlier, only the basic wage + DA was taken into account for PF calculation.

In this case, 5 cases of similar fact are clubbed together where respondents giving special allowance to its employees.  The PF authority held that the special allowance was to be included in basic wage for deduction of provident fund.  Against the order of PF Authority, the respondents approached the Court. But the Courts set aside the order. Against these orders, the Regional Provident Fund Commissioner preferred appeal to Supreme Court which is allowed. In the meantime, the respondent companies also filed appeals but a bench comprising justices Arun Mishra and Navin Sinha dismissed the appeals.

In this appeal before the Supreme Court of India raise a question if the special allowances paid by an establishment to its employees would fall within the expression of “basic wages” for computation of deduction towards Provident Fund as per the provision of Employees’ Provident Fund and Miscellaneous provisions Act 1952.

As per Section 2(b) of the EPF & MP Act 1952, “basic wages” means all emoluments which are earned by an employee while on duty or on leave or on holidays with wages, but does not include-

the cash value of any food concession; any dearness allowance, house-rent allowance, overtime allowance, bonus, commission or any other similar allowance any presents made by the employer.

The Supreme Court is in the opinion that that the EPF & MP Act is a social welfare legislation made for protection of the workmen, and therefore, required to be interpreted in a broad manner. Special allowances are being paid to its employees are either variable or are linked to any incentive for production. The intention of respondent establishments was to exclude this special allowance from the purview of ‘wage’ and thus reduce the employer’s contribution to the employees’ provident fund .The wage structure and the components of salary have been examined on facts, both by the PF authority and the appellate authority under the Act, and arrived at conclusion that the special allowances are essentially a part of the basic wage. So, the apex court has ruled that employers cannot segregate ‘special allowance’ paid to his employee from basic wages for purpose of PF deductions.

Special allowance part of basic wages for PF Calculation: Supreme Court Link


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