Supreme Court has held that special allowance is part of basic wages
for EPF dues computation
An EPFO study found out that a large number of firms were splitting
their employees pay packages into numerous allowance to reduce their EPF liability
New Delhi: After the Supreme Court held that special allowance is part of basic wages
for EPF dues computation, retirement fund body EPFO has decided to take a
stringent action against those firms which will not take into account such component
in PF contributions.
The apex court in its judgement has ruled that special allowance is part
of the basic wages for computing the employees provident fund (EPF).
The employer as well as employee pay 12% of basic wages each towards
contribution for social security scheme run by the Employees' Provident Fund
"Following the judgement, the EPFO will take stringent action against firms
which would not factor in special allowance for computation of EPF
contributions. The body is studying the judgement and would soon
come out with a detailed plan to implement the judgement," a source
privy to the development said.
"The case of artificially lowering basic wages which become the basis
for computation of EPF contributions, was pleaded by the EPFO in the
apex court. Thus, it is imperative for the body to implement this in letter
and spirit," the source said.
An EPFO trustee Virjesh Upadhyay, who is also General Secretary
of Bharatiya Mazdoor Sangh (BMS), said, "We welcome the apex
court decision. This is a long pending issue. In fact the EPFO's apex
decision making body Central Board of Trustees had constituted a
committee to give a detailed report and suggestions to deal with
splitting of wages by employers for reducing EPF liability."
He further informed, "The committee had given its recommendation
to deal with the issue. But in the meantime, the matter went to court
and recommendations given by the panel to include various allowance
into basic wage could not be implemented."
Earlier, the EPFO conducted a study and found out that a large number
of firms were splitting their employees pay packages into numerous
allowance to reduce their EPF liability convincing their workers that
this would result in higher taken home pay.
The Supreme Court in its order has allowed the appeal of the EPFO,
which sought to include allowance like special allowance in basic wages
for computation of EPF contributions.