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 ... .”