Supreme Court Land Mark Judgment – Now PF is
applicable on basic salary plus all allowances.
CIVIL APPEAL NO(s). 6221 OF 2011
THE REGIONAL PROVIDENT FUNDCOMMISSIONER (II) WEST BENGAL
...APPELLANT(S)
VERSUS
VIVEKANANDA VIDYAMANDIR AND OTHERS
...
RESPONDENT(S) WITH
CIVIL APPEAL NO(s). 3965 3966 OF 2013
S URYA ROSHNI LTD.
...APPELLANT(S)
VERSUS
E MPLOYEES PROVIDENT FUND AND OTHERS
...RESPONDENT(S)
FACTS OF THE CASE
The appellants with the exception of Civil Appeal No. 6221
of 2011, are establishments covered under
the Employees’ Provident Fund and Miscellaneous
Provisions Act, 1952 (hereinafter referred
to as the “Act”).
WHY SPECIAL ALLOWANCE IS ELIGIBLE FOR PF DEDUCTION?
The
appeals raise a
common question of law, if the special allowances paid byan
establishment to its employees would fall within the expression“basic wages” under Section 2(b)(ii) read with Section 6 of the Act
for computation of deduction towards
Provident Fund. The appeals have therefore
been heard together and are being
disposed by a common order.
The
respondent is an
unaided school giving special allowance by way of incentive to
teaching and nonteaching staff pursuant to
an agreement between the staff and the
management.
SINGLE JUDGE HELD THAT NO PF DEDUCTION IS TO BE MADE ON SPECIAL
ALLOWANCE.
The
incentive was
reviewed from time to time upon enhancement of the tuition fees
of the students.
The authority under the
Act held that the special allowance was to be included in basic wage for deduction
of provident fund.
The Single Judge set aside the order.
DIVISION BENCH ALSO HELD SPECIAL ALLOWNACE IS NOT FALL UNDER SALARY
The subsequentDivision Bench dismissed the appeal holding that the special
allowance was not linked to the
consumer price index, and
therefore did not fall within the definition of basic wage, thus not
liable to deduction.
VIEW OF THE SUPREME COURT
Applying
the aforesaid tests to the facts of the presentappeals, no material has been placed by the establishments todemonstrate that the allowances in question being paid to itsemployees were either variable or were linked to any incentive forproduction resulting in greater output by an employee and thatthe allowances in question were not paid across the board to allemployees in a particular category or were being paid especiallyto those who avail the opportunity.
WHAT CONSTITUTE A SPECIAL ALLOWANCE?
In order that the amount
goes beyond the basic wages, it has
to be shown that the workman concerned
had become eligible to get this
extra amount beyond the normal work
which he was otherwise
required to put in.
There is no data available on record to showwhat were thenorms of work prescribed for those workmen
during the relevant period.
WHETHER ADDITIONAL ALLOWANCE FOR EXTRA WORK RENDERED BY EMPLOYEES?
It is therefore not
possible to ascertain whether extra amounts paid to the workmen were infact paid for the extra work which had exceeded the normaloutput prescribed for the workmen.
ALLOWANCE IS A PART OF THE SALARY
The wage structure and thecomponents of salary have been examined on facts, both by theauthority and the appellate authority under the Act, who havearrived at a factual conclusion that the allowances in questionwere essentially a part of the basic wage camouflaged as part of
an allowance so as to avoid deduction
and contribution accordingly to the provident
fund account of the employees.
SUPREME COURT HELD THAT SPECIAL ALLOWANCE IS PART OF SALARY
There is no occasion for us to interfere with the concurret
conclusions of facts. The appeals by
the establishmentstherefore merit no interference. Conversely, for the same reason
the appeal preferred by the Regional
Provident Fund Commissioner deserves to be allowed.
WHAT IS BASIC WAGE AS PER PF ACT ,1952
(ii) any dearness allowance that is to say, 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 or of work done in such employment
WHAT IS BASIC WAGE AS PER PF ACT ,1952
As per the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, “basic wages” means all emoluments which are earned by an employee while on duty or on leave or on holidays with wages in either case in accordance with the terms of the contract of employment and which are paid or payable in cash to him.
EXEMPTED ALLOWANCE FOR PF CALCULATION
However, the Act excludes these two important emoluments following from the definition of Basic Wages or Salary:
(i) the cash value of any food concession;
(ii) any dearness allowance that is to say, 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 or of work done in such employment
WAGE DOES NOT INCLUDE PRODUCTION BONUS OR INCENTIVE WAGE
SC observed “ whatever is payable by all concerns or earned by all permanent employees had to be included in basic wage for the purpose of deduction under Section 6 of the Act. It is only when a worker produces beyond the base standard, what he earns would not be a basic wage but a production bonus or incentive wage which would then fall outside the purview of basic wage under Section 2(b) of the Act.
The test adopted to determine if any payment was to be excluded from basic wage is that the payment under the scheme must have a direct access and linkage to the payment of such special allowance as not being common to all. The crucial test is one of universality.”
PF WILL COVER FOR ALL ALLOWANCES
Currently, as per the salary structure, the employees are supposed to contribute the mandatory 12 per cent towards their PF. The other emoluments are shown as different allowances such as house rent allowance, special allowance etc. even though they form a part of the total salary or cost to the company. Now after SC judgement PF contribution will be on the total amount including all the allowances paid to an employee and not just on the basic salary.
ONLY UP TO RS 15000 WILL BE TAKEN AS SALARY AND ALLOWANCE FOR PF CALCULATION
The impact will be the contribution towards EPF will be on a higher amount and hence less take-home pay for the employee however the the retirement kitty will see more inflows as higher monthly PF contribution will move into the employee’s PF account. The order will be applicable to those with a basic salary and allowances up to Rs 15,000 as PF contribution. Beyond that, PF is not mandatory
HOW SC RULING WILL WORK
The SC ruling means is that those earning salary and special allowances together up to Rs 15,000 will now have to club it for purpose of PF deductions. Earlier, only the basic salary would be taken into account for PF calculation. For instance, if an employee's basic salary is Rs 8,000 and gets special allowances of Rs 5,000, unlike earlier where the PF deduction would apply only on basic salary, now it will be clubbed with special allowance and deductions calculated on a combined sum of Rs 13,000
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