Dear Mr.Amarjeet Singh
The question raised by you in one of your previous posts is "The only question is that can we raise basic by decreasing/merging any other allowance in basic or we have to increase the basic without touching any allowance." An answer to this question has to be found with reference to the provisions of Section 9A of the Industrial Disputes Act 1947 also. According to this section any change in the conditions of service mentioned in the Fourth Schedule to the Industrial Disputes Act and applicable to workmen can be done only after giving them 21 days notice as contemplated by the Section. Item 1 in this Schedule relates to wages and item 3 in the schedule relates to compensatory and other allowances. Therefore if you decide to make a downward revision of either the basic wage or any other allowances in respect of your employees who are workmen as defined under the Industrial Disputes Act you have to follow the procedure prescribed under section 9A of that Act.
With regards
From India, Madras
169The question raised by you in one of your previous posts is "The only question is that can we raise basic by decreasing/merging any other allowance in basic or we have to increase the basic without touching any allowance." An answer to this question has to be found with reference to the provisions of Section 9A of the Industrial Disputes Act 1947 also. According to this section any change in the conditions of service mentioned in the Fourth Schedule to the Industrial Disputes Act and applicable to workmen can be done only after giving them 21 days notice as contemplated by the Section. Item 1 in this Schedule relates to wages and item 3 in the schedule relates to compensatory and other allowances. Therefore if you decide to make a downward revision of either the basic wage or any other allowances in respect of your employees who are workmen as defined under the Industrial Disputes Act you have to follow the procedure prescribed under section 9A of that Act.
With regards
From India, Madras
As far as baisc salary is concerned on which PF is calculated, Section 12 of EPF and MP Act, 1952, proibits reduction in basic salary.
Section 12 says "No employer to which PF Act applies shall by reason only of his liability for the payment of any contribution to the Fund reduce whether directly or indirectly the wages of any employee"
regards,
Kamal
From India, Pune
Section 12 says "No employer to which PF Act applies shall by reason only of his liability for the payment of any contribution to the Fund reduce whether directly or indirectly the wages of any employee"
regards,
Kamal
From India, Pune
u can increase basic by merging allowance.
U can pass ammendmet in compensation policy for merging allowance or re-arrange in salary structure but do't try to reduce basic, u can increase it and any allowance may decrease in % and common for all for the specific category.
---------Even I'm satisfied with deepak; u can conduct such comparision.
From India, Gurgaon
U can pass ammendmet in compensation policy for merging allowance or re-arrange in salary structure but do't try to reduce basic, u can increase it and any allowance may decrease in % and common for all for the specific category.
---------Even I'm satisfied with deepak; u can conduct such comparision.
From India, Gurgaon
greetings all sir i newly joined as a hr manager. i dont know anything because that is my uncles company at karnataka please advice me what to do and what is my duties
From India, Bangalore
From India, Bangalore
dear all
we have inspected our company in 1/6/09 and covered from this date but on contribution started after join a person getting less then 6500 on 1/7/10 befor that nobody was getting less the prescribed limit. now inspector is to deposit cont. from coverage date. what we should pl. clearify asap
thanks
Dhanesh
From India, Pune
we have inspected our company in 1/6/09 and covered from this date but on contribution started after join a person getting less then 6500 on 1/7/10 befor that nobody was getting less the prescribed limit. now inspector is to deposit cont. from coverage date. what we should pl. clearify asap
thanks
Dhanesh
From India, Pune
Dear All,
Should social security contributions be based on minimum wages?
The Employees Provident Fund Organisation of India (“EPFO”), which manages India’s largest
social security fund for employees, has recently clarified to its officers that employers are
required to make provident fund (“PF”) contributions on the minimum wages.
The EPFO has issued an inter-department clarification on May 23, 2011 (“Clarification”)
indicating that splitting of minimum wages for the purposes of PF contributions is not
permissible. This Clarification, which has been issued in view of the lack of a uniform approach
followed by the PF authorities in different states, seems to be an attempt by the labour
department to settle the ongoing ambiguity with respect to the calculation of provident fund
(“PF”) contributions.
Background
According to the extant provisions of law, to the extent the Employees Provident Fund and
Miscellaneous Provisions Act, 1952 (“EPF Act”) applies to an establishment, the employer is
required to make PF contributions for its eligible employees (whether employed directly or
through a contractor) on the amount of basic wages (base salary), dearness allowance (which is
like a cash allowance paid to an employee on account of inflation) and retaining allowance.
While the EPF Act defines ‘basic wages’, it does not stipulate that basic wages need to be
equivalent to the minimum wages under the Minimum Wages Act, 1948 (“MWA”). Further, it is
a common practice to structure the compensation package to include several allowances and
perquisites, some of which provide tax benefits. As a result, for employees drawing minimum
wages, the basic wages would typically be an amount lower than the minimum wage rates
prescribed by the government under the MWA. This would therefore reduce the PF and pension
contributions by the employer as they are linked to the amount of basic wages.
The Clarification states that the minimum wage is the lowest permitted wage legally required to
be paid by an employer to its worker and therefore ‘basic wages’ (for the purpose of PF
calculation) should not be lower than the minimum wage (under the MWA). As per the
Clarification, employers who do not pay minimum wages to their employees but claim to pay
certain additional allowances to them, may be liable for punishment under the EPF Act as well as
under the Indian Penal Code. Further, the Clarification also states that any employment contract
between the employer and the employee which contains a stipulation to the effect that the
minimum wages paid or payable to an employee is bifurcated to reduce the liability of the
employer under the EPF Act shall be treated as void ab initio. Since the minimum wage is
calculated by the state governments after due consideration of the prevailing market conditions
and other prescribed factors, splitting, segregation or re-classification of the minimum wage
should not be permissible.
The Clarification places reliance1 on the judgment of the Division Bench of the Karnataka High
Court, in the case of M/s Group 4 Securities Guarding Ltd., Bangalore Vs. Regional Provident
Fund Commissioner and Others2 (reported as 2004 LIC, Page 2075), which specifies that the PF
Commissioner may exercise his powers to enquire whether the wages fixed are a subterfuge to
avoid its contribution to the PF. The court took the view in that case that employers splitting up
basic wages under several heads and allowances would amount to a subterfuge to avoid PF
contribution. However, it is pertinent to note that while the MWA provides for a definition of
wages, it does not contain a definition of basic wages.
Analysis
The Clarification seems to be in the interest of the employee community in general, since it is
intended to ensure that the employer makes a certain level of PF contributions for its eligible
employees and provide necessary social security. The contributions would help ensure adequate
amounts in the employees’ provident fund account and provide sufficient pension benefits to
the employees and their family members. The Clarification should help curb the malpractices
adopted by some employers who make a very low amount of PF contribution as a result of the
low basic salary, which also affects the benefits under certain other labour laws where the
benefits are linked to the basic salary.
However, the stand taken by the EPFO and the position stated in the Clarification, does not
appear to be consistent with law and may be tested in a court of law, leading to more litigation
on this issue. This is in view of some of the points as mentioned below:
a. The EPF Act, being a standalone law, does not prescribe that the basic wages should be
equal to the minimum wages. Moreover, if that was indeed the intention of the legislature,
instead of providing a separate definition of basic wages under the EPF Act, it would have
cross referred to the definition of wages under the MWA, since the EPF Act was enacted
much after enactment of the MWA.
b. The EPF Act is silent on the issue with regard to the percentage of the salary that may be
deemed to be basic wages. As a matter of fact, there is no statute in India that prescribes the
percentage of basic wages and/or of any allowance. Accordingly, an employer can under the
employment contract indicate the amount of basic wages (besides the other allowances)
that shall be payable, as long as the employer ensures that the employee receives at least
the minimum amount of wages as prescribed under the MWA.
c. The MWA does not contain a separate definition of basic wages. Infact, while the
definition of wages under the MWA includes House Rent Allowance (“HRA”), the definition
of basic wages under EPF Act specifically excludes HRA - therefore there does not appear to
be any co-relation between ‘wages’ under the MWA and ‘basic wages’ under the EPF Act.
d. The latest judgement on this subject, being that on the Punjab and Haryana High Court in
the case of Assistant Provident Fund Commissioner, Gurgaon vs. G4S Security Services
(India) Ltd & Anr. (2011 LLR 316 (P&H HC) has permitted the employer to split the
minimum wages for the purposes of PF contributions. Unless another court decision in the
future overturns this judgement, this judgement shall continue to be the law on this
subject. This judgement also makes necessary references to some of the earlier judgments
as have been referred in the Clarification. It is surprising to note that this judgment has not
been referred to in the Clarification.
Unless there is a further clarity issued by the EPFO on this issue or unless this matter is settled by
the courts, this Clarification is likely to lead to more labour law litigation in India since the PF
authorities, relying on the Clarification, are likely to take an aggressive stand.
_______________________
1 The Clarification refers to the following judgments: (i) the RPFC, Punjab vs. Shibu Metal Works
1965 (1) LLJ 473, (ii) Crown Aluminum Works vs. Workers Union (1958) Vol. I LLJ, Page 1, (iii)
Unichoyi vs. State of Kerala (1961 Vol.I Page 631), (iv) Kamani Metals & Allys Ltd. vs. Their Work
Men (1967 Vol. II-55.
2 The Appellant Company had bifurcated the wages into several allowances and that the basic
pay component was a fraction of the statutory minimum wage stipulated.
From India, Surat
Should social security contributions be based on minimum wages?
The Employees Provident Fund Organisation of India (“EPFO”), which manages India’s largest
social security fund for employees, has recently clarified to its officers that employers are
required to make provident fund (“PF”) contributions on the minimum wages.
The EPFO has issued an inter-department clarification on May 23, 2011 (“Clarification”)
indicating that splitting of minimum wages for the purposes of PF contributions is not
permissible. This Clarification, which has been issued in view of the lack of a uniform approach
followed by the PF authorities in different states, seems to be an attempt by the labour
department to settle the ongoing ambiguity with respect to the calculation of provident fund
(“PF”) contributions.
Background
According to the extant provisions of law, to the extent the Employees Provident Fund and
Miscellaneous Provisions Act, 1952 (“EPF Act”) applies to an establishment, the employer is
required to make PF contributions for its eligible employees (whether employed directly or
through a contractor) on the amount of basic wages (base salary), dearness allowance (which is
like a cash allowance paid to an employee on account of inflation) and retaining allowance.
While the EPF Act defines ‘basic wages’, it does not stipulate that basic wages need to be
equivalent to the minimum wages under the Minimum Wages Act, 1948 (“MWA”). Further, it is
a common practice to structure the compensation package to include several allowances and
perquisites, some of which provide tax benefits. As a result, for employees drawing minimum
wages, the basic wages would typically be an amount lower than the minimum wage rates
prescribed by the government under the MWA. This would therefore reduce the PF and pension
contributions by the employer as they are linked to the amount of basic wages.
The Clarification states that the minimum wage is the lowest permitted wage legally required to
be paid by an employer to its worker and therefore ‘basic wages’ (for the purpose of PF
calculation) should not be lower than the minimum wage (under the MWA). As per the
Clarification, employers who do not pay minimum wages to their employees but claim to pay
certain additional allowances to them, may be liable for punishment under the EPF Act as well as
under the Indian Penal Code. Further, the Clarification also states that any employment contract
between the employer and the employee which contains a stipulation to the effect that the
minimum wages paid or payable to an employee is bifurcated to reduce the liability of the
employer under the EPF Act shall be treated as void ab initio. Since the minimum wage is
calculated by the state governments after due consideration of the prevailing market conditions
and other prescribed factors, splitting, segregation or re-classification of the minimum wage
should not be permissible.
The Clarification places reliance1 on the judgment of the Division Bench of the Karnataka High
Court, in the case of M/s Group 4 Securities Guarding Ltd., Bangalore Vs. Regional Provident
Fund Commissioner and Others2 (reported as 2004 LIC, Page 2075), which specifies that the PF
Commissioner may exercise his powers to enquire whether the wages fixed are a subterfuge to
avoid its contribution to the PF. The court took the view in that case that employers splitting up
basic wages under several heads and allowances would amount to a subterfuge to avoid PF
contribution. However, it is pertinent to note that while the MWA provides for a definition of
wages, it does not contain a definition of basic wages.
Analysis
The Clarification seems to be in the interest of the employee community in general, since it is
intended to ensure that the employer makes a certain level of PF contributions for its eligible
employees and provide necessary social security. The contributions would help ensure adequate
amounts in the employees’ provident fund account and provide sufficient pension benefits to
the employees and their family members. The Clarification should help curb the malpractices
adopted by some employers who make a very low amount of PF contribution as a result of the
low basic salary, which also affects the benefits under certain other labour laws where the
benefits are linked to the basic salary.
However, the stand taken by the EPFO and the position stated in the Clarification, does not
appear to be consistent with law and may be tested in a court of law, leading to more litigation
on this issue. This is in view of some of the points as mentioned below:
a. The EPF Act, being a standalone law, does not prescribe that the basic wages should be
equal to the minimum wages. Moreover, if that was indeed the intention of the legislature,
instead of providing a separate definition of basic wages under the EPF Act, it would have
cross referred to the definition of wages under the MWA, since the EPF Act was enacted
much after enactment of the MWA.
b. The EPF Act is silent on the issue with regard to the percentage of the salary that may be
deemed to be basic wages. As a matter of fact, there is no statute in India that prescribes the
percentage of basic wages and/or of any allowance. Accordingly, an employer can under the
employment contract indicate the amount of basic wages (besides the other allowances)
that shall be payable, as long as the employer ensures that the employee receives at least
the minimum amount of wages as prescribed under the MWA.
c. The MWA does not contain a separate definition of basic wages. Infact, while the
definition of wages under the MWA includes House Rent Allowance (“HRA”), the definition
of basic wages under EPF Act specifically excludes HRA - therefore there does not appear to
be any co-relation between ‘wages’ under the MWA and ‘basic wages’ under the EPF Act.
d. The latest judgement on this subject, being that on the Punjab and Haryana High Court in
the case of Assistant Provident Fund Commissioner, Gurgaon vs. G4S Security Services
(India) Ltd & Anr. (2011 LLR 316 (P&H HC) has permitted the employer to split the
minimum wages for the purposes of PF contributions. Unless another court decision in the
future overturns this judgement, this judgement shall continue to be the law on this
subject. This judgement also makes necessary references to some of the earlier judgments
as have been referred in the Clarification. It is surprising to note that this judgment has not
been referred to in the Clarification.
Unless there is a further clarity issued by the EPFO on this issue or unless this matter is settled by
the courts, this Clarification is likely to lead to more labour law litigation in India since the PF
authorities, relying on the Clarification, are likely to take an aggressive stand.
_______________________
1 The Clarification refers to the following judgments: (i) the RPFC, Punjab vs. Shibu Metal Works
1965 (1) LLJ 473, (ii) Crown Aluminum Works vs. Workers Union (1958) Vol. I LLJ, Page 1, (iii)
Unichoyi vs. State of Kerala (1961 Vol.I Page 631), (iv) Kamani Metals & Allys Ltd. vs. Their Work
Men (1967 Vol. II-55.
2 The Appellant Company had bifurcated the wages into several allowances and that the basic
pay component was a fraction of the statutory minimum wage stipulated.
From India, Surat
Dear Mr.Arihant Can you,if possible, please upload the judgments referred to in your post? With regards
From India, Madras
From India, Madras
Hi Amarjeet, First note if salary would be less than minimum wages, it is against the minimum wages act.
From India, Delhi
From India, Delhi
Hi,
HR manager means to handled Human Resource related problems, it is related to Manpower, joining, retentions plan, motivational activities, benefits of the employees, such as ESIC, EPF, Gratuity, Bonus, Leaves, Variable pay, Salary grievances, many more...
From India, Delhi
HR manager means to handled Human Resource related problems, it is related to Manpower, joining, retentions plan, motivational activities, benefits of the employees, such as ESIC, EPF, Gratuity, Bonus, Leaves, Variable pay, Salary grievances, many more...
From India, Delhi
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PF- on minimum wages-EPF appellate tribunal-Award against Deptt..pdf