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Saturday, 2 March 2019

The Supreme Court, PF Contributions and Basic Wages

The most recent Supreme Court judgement has spiralled a series of concerns, remarks, doubts, and plenty of scepticism. There is much to be understood in what has been declared, and the implications include measures that are both in favour of and against the move.

Basic Wages
The Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 defines ‘basic wages’ as emoluments paid to an employee on duty, holiday or leave in accordance with the terms of employment. The emoluments excluded from this definition are:
-        -  Cash value of food concessions;
-        -  All dearness allowances (payments in any form attributed to rise in cost of living, house rent allowance, overtime allowance bonus and/or commissions

In the current scenario, the requirement has been for employees to furnish 12 percent (depending on industry and establishment) of basic wages towards the provident fund.

Supreme Court Judgement
The judgement of the Supreme Court primarily addresses components outside the basic wage which continue to contribute to gross salary, and the consequent cost-to-company. These include
-        - Dearness allowance
-         -Retaining allowances
-         -Cash value of food concessions

All the above allowances, and any contributors which are uniformly, necessarily and ordinarily common, or allowances that are without purpose and camouflaged can also feature as the basic components upto a cap of Rs. 15,000.
Being a judgement, the effect of this judgement can go back to as many years as the organisation has or has not adhered to the guidelines.

The Supreme Court further clarified that CCA, travel reimbursements, incentives and allowances which are distinctive to employees based on class or individual performance will not be considered a part of Basic wages.

The impact of this judgement can be felt in two major forms:
-         - Increased burden on PF contribution for employees resulting in lower take-home
-         - Improved retirement options through increased contribution