The Union government will on Thursday come out with a clarification following a confusion created by a November 30 circular of the Employees’ Provident Fund Organisation (EPFO) on fixing the provident fund contribution while calculating employees’ basic wages.
Informed sources said the circular was nothing new and it only reiterated the provisions of Section 2 of the EPF Act. It stated that all allowances, except a few, should be taken into account for calculating the wages and from that the PF contribution of the employer had to be arrived at. This means the employer had to contribute more towards PF for the employees. However, the circular did not clarify which of the allowances were to be taken into account for working out the basic wages, creating confusion among employers and employees’ unions.
An official said the clarification would clear all the doubts.
Originally, the circular was issued to arrest the growing trend among some employers to lessen their burden on PF contribution by splitting the basic salary into various allowances and thus bringing down their contribution. This results in loss to employees.
There are over 5 crore subscribers in the EPFO and employees have to contribute a statutory minimum of 12% of their basic salary for PF and an equal amount is contributed by employers.
The circular said basic wages “encompasses all payments except the specified exclusions. All such allowances which are ordinarily, necessarily and uniformly paid to the employees are to be treated as part of the basic wages.”
PF does not cover certain “specified exclusions” like “cash value of any food concession; any dearness allowance ... 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 ... .”
Keywords: Employees Provident Fund Organisation, Electronic Challan cum Return, EPFO, PF accounts, basic wages, provident fund, PF defaulters
It appears that the EPFO has forgotten its old instructions in this
regard. Various CPFCs during their tenure have given clear
instructions that certain category of allowances will not form part of
the 'basic wages' as defined under section 2(b) of the EPF Act. Some
of the allowances so excluded are, Matinee allowance Attendance bonus,
Commission on advertisements secured for newspapers, Shift allowance
Maternity benefits, Location allowance, subsistence allowance, Lay-off
and retrenchment compensation, Compensatory allowance Night allowance
Wages paid for holidays, Tiffin allowance, Cash handling allowance
paid to Cashiers, Supervisory allowance/additional pay paid to
Teachers, Charge allowance, Special Allowance, Machine allowance
Steno-typist allowance, Plant allowance,Honorarium for looking after
the hospital,Special Compensatory allowance paid to unmarried officers
Washing allowance,Holiday allowance,Typist allowance,Stenographer’s
allowance etc
Please Email the Editor