The Apex court has announced common verdict in five different appeals having the common question. Which are a) RPFC, West Bengal Vs. Vivekananda Vidyamandir b) Surya Roshni Ltd. Vs. EPFO, c) U- Flex Ltd. Vs. EPFO d) Montage Enterprise Pvt. Ltd. Vs. EPFO and e) The management of Saint Gobain Glass Ltd. Vs. RPFC
The question examined was:
“Whether special allowances paid by an 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.”
From India, Mumbai
300The question examined was:
“Whether special allowances paid by an 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.”
From India, Mumbai
The analysis is precise and clear.Thanks Mr.Shailesh Parikh for sharing it.The other implications can be:
1) The take home pay of the employees may get less since they have to pay contribution on other allowances that are uniformly paid to all but beneficial in the long run at the time of retirement since it provides more financial cushion as the additional contribution on the additional allowances also attracts interest .
2) It may not cast much extra load on the employer as he can limit his contribution to Rs.15000/- which is the wage cap, if he so chooses.
3) The International workers might probably have to more by way of contribution because of inclusion of other allowances and there is no wage limit in their case.
These are only observations and others are welcome to throw futher light on it.
B.Saikumar
HR & Labour relations Adviser
From India, Mumbai
1) The take home pay of the employees may get less since they have to pay contribution on other allowances that are uniformly paid to all but beneficial in the long run at the time of retirement since it provides more financial cushion as the additional contribution on the additional allowances also attracts interest .
2) It may not cast much extra load on the employer as he can limit his contribution to Rs.15000/- which is the wage cap, if he so chooses.
3) The International workers might probably have to more by way of contribution because of inclusion of other allowances and there is no wage limit in their case.
These are only observations and others are welcome to throw futher light on it.
B.Saikumar
HR & Labour relations Adviser
From India, Mumbai
Hi All
Thanks for sharing your views. I have one query on same. As this is a judgement and not a notification or circular to have a with effect date. That means this is from the day since the act was applicable and hence forward from the date of establishment registration in EPF. My query is
1. Will the EPFO dept go back and say the establishment should pay the difference of EPF from that date till today?
2. If yes in what section of the Act?
3. What shall be the remedy to this?
Thanks in advance.
Thanks for sharing your views. I have one query on same. As this is a judgement and not a notification or circular to have a with effect date. That means this is from the day since the act was applicable and hence forward from the date of establishment registration in EPF. My query is
1. Will the EPFO dept go back and say the establishment should pay the difference of EPF from that date till today?
2. If yes in what section of the Act?
3. What shall be the remedy to this?
Thanks in advance.
Hi Aniket,
1. Will the EPFO dept go back and say the establishment should pay the difference of EPF from that date till today?
This judgment is in an appeal filed by revel parties-RPFC/employers. Which implies there was a dispute, short contribution by employers and RPFC pointed out violation and demand for diff. together with interest which contention has been upheld by this judgment. Therefore I think there is possibility of additional burden on employers.
2. If yes in what section of the Act?
The applicable section as noted in the judgment has been clarified and coverage amplified.
3. What shall be the remedy to this?
I don't think there is possibility to avoid. However, review petitions may be possible, but there is remote chances of reversing the judgment itself. May be a plea to make the amplified definition be implemented from the date of judgment could receive due consideration by the apex court.
From India, Bangalore
1. Will the EPFO dept go back and say the establishment should pay the difference of EPF from that date till today?
This judgment is in an appeal filed by revel parties-RPFC/employers. Which implies there was a dispute, short contribution by employers and RPFC pointed out violation and demand for diff. together with interest which contention has been upheld by this judgment. Therefore I think there is possibility of additional burden on employers.
2. If yes in what section of the Act?
The applicable section as noted in the judgment has been clarified and coverage amplified.
3. What shall be the remedy to this?
I don't think there is possibility to avoid. However, review petitions may be possible, but there is remote chances of reversing the judgment itself. May be a plea to make the amplified definition be implemented from the date of judgment could receive due consideration by the apex court.
From India, Bangalore
Dear experts
I am puzzled with the EPF directive making Other Allowance part of EPFO contribution.
This will greatly reduce the take home.
However the new law is silent on the fact for PF contributions of employees beyond the limit of Basic Wages above Rs 15000 per month
My query is:
1)If the company with the willful agreement of the employee agrees to cap the basic salary of an employee at Rs 15000 and the monthly PF contribution of Rs 1800 then will that be a contravention of the law.
2)Also what is the procedure for informing EPFO of restructuring the salary contribution to EPF i.e a lot of employees want their contribution to be capped to the statutory limit.
3)Also I would seek the opinion of the experts on the logic of the government to initiate such a move as the tax contribution u/s 80C has not been increased.Thus what the employee will get a reduced in hand pay as he will contribute a higher amount into EPF and at the same time pay tax on the same thus reducing his take home pay.
4) I also need to understand that is the EPF contribution is only restricted to the word "allowance" and not reimbursement or amount paid to employees against bills.
I am very confused on this fact as there are queries coming on the same.
Please help.
Regards
Anuradha Grewal
From India, Mumbai
I am puzzled with the EPF directive making Other Allowance part of EPFO contribution.
This will greatly reduce the take home.
However the new law is silent on the fact for PF contributions of employees beyond the limit of Basic Wages above Rs 15000 per month
My query is:
1)If the company with the willful agreement of the employee agrees to cap the basic salary of an employee at Rs 15000 and the monthly PF contribution of Rs 1800 then will that be a contravention of the law.
2)Also what is the procedure for informing EPFO of restructuring the salary contribution to EPF i.e a lot of employees want their contribution to be capped to the statutory limit.
3)Also I would seek the opinion of the experts on the logic of the government to initiate such a move as the tax contribution u/s 80C has not been increased.Thus what the employee will get a reduced in hand pay as he will contribute a higher amount into EPF and at the same time pay tax on the same thus reducing his take home pay.
4) I also need to understand that is the EPF contribution is only restricted to the word "allowance" and not reimbursement or amount paid to employees against bills.
I am very confused on this fact as there are queries coming on the same.
Please help.
Regards
Anuradha Grewal
From India, Mumbai
Hi Anuradha,
Pl.consider my views on your queries-
"This will greatly reduce the take home.
However the new law is silent on the fact for PF contributions of employees beyond the limit of Basic Wages above Rs 15000 per month
My query is:
1)If the company with the willful agreement of the employee agrees to cap the basic salary of an employee at Rs 15000 and the monthly PF contribution of Rs 1800 then will that be a contravention of the law.
= As per existing provisions of law an employer will have option to cap the contribution upto the statutory limit of Rs.15,000/- The impact of SC judgment is focused only on inclusion of Spl.&other allw.for the purposes of computation of EPF matching contribution of employers. It cannot be construed enhancing the statutory limit of Rs.15000/- which was not touched. However law prohibits tinkering the salary structure with a motive to reduce/avoid the employers’ contribution.
2)Also what is the procedure for informing EPFO of restructuring the salary contribution to EPF i.e a lot of employees want their contribution to be capped to the statutory limit.
= There is no provision to keep posted with information of changes in emoluments of employees, as if seeking their approval. Changes in emoluments are governed by the bilateral terms & conditions. And there is no provisions in law stipulating the quantum of basic or allw. So long as statutory minimum wages are adhered to there is no worry. However capping employers' contribution upto statutory limit is possible.
3)Also I would seek the opinion of the experts on the logic of the government to initiate such a move as the tax contribution u/s 80C has not been increased.Thus what the employee will get a reduced in hand pay as he will contribute a higher amount into EPF and at the same time pay tax on the same thus reducing his take home pay.
= It’s misunderstood as if govt. has introduced a new provision now, it’s not so, RPFC raised violations w.r.t. non-inclusion of these allw. for employers’ contribution which interpretation was challenged in this case. SC upheld the contention of the RPFC and amplified the coverage of allowance for this purposes. We shouldn’t see the impact as if every employer is going to be burdened in a big way. In fact many states’ minimum wages for different categories have already reached around the statutory limit. So the impact, in my opinion, will impact only marginally wherever the wages/salary levels are below Rs.15000/-
Of course relief u/s.80C of IT act has not been increased for the last few years. However Std.Deduction of Rs.40,000 & Rs.50,000 (from 2019-20) without linking to 80 C has been (re-)introduced which some what a relief to those in the border line.
4) I also need to understand that is the EPF contribution is only restricted to the word "allowance" and not reimbursement or amount paid to employees against bills.
= The contention of the impugned case addresses such of the allowances discussed in the judgment. Let us not stretch it beyond what have been listed therein.
Reimbursements like LTA/medical expenses against bills as per their HR policy which are infrequent(not on regular basis like monthly allw.) are not to be considered as allowances for EPF.(pl.mind the limits stipulated for the purposes of IT)
I am very confused on this fact as there are queries coming on the same.
= Queries naturally should arise everywhere. I don’t see anything which cannot be questioned and free from confusion. In saying so if we don’t interpret differently to that much confusion can be avoided.
From India, Bangalore
Pl.consider my views on your queries-
"This will greatly reduce the take home.
However the new law is silent on the fact for PF contributions of employees beyond the limit of Basic Wages above Rs 15000 per month
My query is:
1)If the company with the willful agreement of the employee agrees to cap the basic salary of an employee at Rs 15000 and the monthly PF contribution of Rs 1800 then will that be a contravention of the law.
= As per existing provisions of law an employer will have option to cap the contribution upto the statutory limit of Rs.15,000/- The impact of SC judgment is focused only on inclusion of Spl.&other allw.for the purposes of computation of EPF matching contribution of employers. It cannot be construed enhancing the statutory limit of Rs.15000/- which was not touched. However law prohibits tinkering the salary structure with a motive to reduce/avoid the employers’ contribution.
2)Also what is the procedure for informing EPFO of restructuring the salary contribution to EPF i.e a lot of employees want their contribution to be capped to the statutory limit.
= There is no provision to keep posted with information of changes in emoluments of employees, as if seeking their approval. Changes in emoluments are governed by the bilateral terms & conditions. And there is no provisions in law stipulating the quantum of basic or allw. So long as statutory minimum wages are adhered to there is no worry. However capping employers' contribution upto statutory limit is possible.
3)Also I would seek the opinion of the experts on the logic of the government to initiate such a move as the tax contribution u/s 80C has not been increased.Thus what the employee will get a reduced in hand pay as he will contribute a higher amount into EPF and at the same time pay tax on the same thus reducing his take home pay.
= It’s misunderstood as if govt. has introduced a new provision now, it’s not so, RPFC raised violations w.r.t. non-inclusion of these allw. for employers’ contribution which interpretation was challenged in this case. SC upheld the contention of the RPFC and amplified the coverage of allowance for this purposes. We shouldn’t see the impact as if every employer is going to be burdened in a big way. In fact many states’ minimum wages for different categories have already reached around the statutory limit. So the impact, in my opinion, will impact only marginally wherever the wages/salary levels are below Rs.15000/-
Of course relief u/s.80C of IT act has not been increased for the last few years. However Std.Deduction of Rs.40,000 & Rs.50,000 (from 2019-20) without linking to 80 C has been (re-)introduced which some what a relief to those in the border line.
4) I also need to understand that is the EPF contribution is only restricted to the word "allowance" and not reimbursement or amount paid to employees against bills.
= The contention of the impugned case addresses such of the allowances discussed in the judgment. Let us not stretch it beyond what have been listed therein.
Reimbursements like LTA/medical expenses against bills as per their HR policy which are infrequent(not on regular basis like monthly allw.) are not to be considered as allowances for EPF.(pl.mind the limits stipulated for the purposes of IT)
I am very confused on this fact as there are queries coming on the same.
= Queries naturally should arise everywhere. I don’t see anything which cannot be questioned and free from confusion. In saying so if we don’t interpret differently to that much confusion can be avoided.
From India, Bangalore
Dear Mr. Kumar
Greetings
Thank you for your elaborate answer.
As mentioned earlier I sought your expert opinion on fixing the EPF contribution at Basic Wage of Rs. 15000 pm.
My only question is that if we change our EPF contribution after the SC order will the regional EPFO under whose jurisdiction my organisation falls will object to such modification.
If so then how do we resolve this problem.
Also if retrospective EPF contribution is to be paid what is the period to be considered.
For eg:
If employee A had PF being deducted on salary and not on Sp Allw but after the SC order we are obliged to pay the PF retrospectively. Now under the said judgement retrospective corresponds to what period as the employee may have been working with us for the last 10 years.
Please advice as there are more questions than answers available.
Thanking You
Warm Regards
Anuradha
From India, Mumbai
Greetings
Thank you for your elaborate answer.
As mentioned earlier I sought your expert opinion on fixing the EPF contribution at Basic Wage of Rs. 15000 pm.
My only question is that if we change our EPF contribution after the SC order will the regional EPFO under whose jurisdiction my organisation falls will object to such modification.
If so then how do we resolve this problem.
Also if retrospective EPF contribution is to be paid what is the period to be considered.
For eg:
If employee A had PF being deducted on salary and not on Sp Allw but after the SC order we are obliged to pay the PF retrospectively. Now under the said judgement retrospective corresponds to what period as the employee may have been working with us for the last 10 years.
Please advice as there are more questions than answers available.
Thanking You
Warm Regards
Anuradha
From India, Mumbai
Hello Anuradha,
Pl.go thru' the extract from the SC judgment before going into your query -
xxxxxx
“ 8. We have considered the submissions on behalf of the parties. To consider the common question of law, it will be necessary to set out the relevant provisions of the Act for purposes of the present controversy.
“Section 2 (b): “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, but does not include
(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), houserent 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.”
xxxxx
“ 14. Applying the aforesaid tests to the facts of the present appeals, no material has been placed by the establishments to demonstrate that the allowances in question being paid to its employees were either variable or were linked to any incentive for production resulting in greater output by an employee and that the allowances in question were not paid across the board to all employees in a particular category or were being paid especially to those who avail the opportunity. 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 show what were the norms of work prescribed for those workmen during the relevant period. It is therefore not possible to ascertain whether extra amounts paid to the workmen were in fact paid for the extra work which had exceeded the normal output prescribed for the workmen. The wage structure and the components of salary have been examined on facts, both by the authority and the appellate authority under the Act, who have arrived at a factual conclusion that the allowances in question were 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.
There is no occasion for us to interfere with the concurrent conclusions of facts. The appeals by the establishments therefore merit no interference. Conversely, for the same reason the appeal preferred by the Regional Provident Fund Commissioner deserves to be allowed. “
Now your query -
? As mentioned earlier I sought your expert opinion on fixing the EPF contribution at Basic Wage of Rs. 15000 pm.
My only question is that if we change our EPF contribution after the SC order will the regional EPFO under whose jurisdiction my organisation falls will object to such modification.
If so then how do we resolve this problem.
= I'm not clear, do you mean to say you have a consolidated salary/wage of Rs.15000 p.m. which now you try to bifurcate into various allowances (which are discussed in the SC judgment) Am I correct? If so, bifurcation is OK so long as you don't do it with a view to escape from the contribution by coining some new allowances which are not finding place in the SC judgment. Such attempts only will create problem for you. Neither RPFC not going to approve or disapprove your proposal as they have no such a role to play.
? Also if retrospective EPF contribution is to be paid what is the period to be considered.
For eg:
If employee A had PF being deducted on salary and not on Sp Allw but after the SC order we are obliged to pay the PF retrospectively. Now under the said judgement retrospective corresponds to what period as the employee may have been working with us for the last 10 years.
= I cannot conclusively say Yes or No on the necessity on the need to apply the SC judgment in right spirit from retrospective date. One may tend take a narrow view saying the judgment is passed against appeals in specific cases cited therein and therefore others may relax. Then here the catch is, this being the judgment of the apex court,SC, it applies to every where all over the country. I have no doubt all the RPFCs all over India now on will quote this judgment and raise demands and therefore the demand going to be retrospective effect which nobody could rule out. And therefore, I have no answer if you ask me, from which date? Anybody's guess. I'm sorry I don't want to mislead on this aspect. But pl.be prepared for anything.
From India, Bangalore
Pl.go thru' the extract from the SC judgment before going into your query -
xxxxxx
“ 8. We have considered the submissions on behalf of the parties. To consider the common question of law, it will be necessary to set out the relevant provisions of the Act for purposes of the present controversy.
“Section 2 (b): “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, but does not include
(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), houserent 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.”
xxxxx
“ 14. Applying the aforesaid tests to the facts of the present appeals, no material has been placed by the establishments to demonstrate that the allowances in question being paid to its employees were either variable or were linked to any incentive for production resulting in greater output by an employee and that the allowances in question were not paid across the board to all employees in a particular category or were being paid especially to those who avail the opportunity. 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 show what were the norms of work prescribed for those workmen during the relevant period. It is therefore not possible to ascertain whether extra amounts paid to the workmen were in fact paid for the extra work which had exceeded the normal output prescribed for the workmen. The wage structure and the components of salary have been examined on facts, both by the authority and the appellate authority under the Act, who have arrived at a factual conclusion that the allowances in question were 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.
There is no occasion for us to interfere with the concurrent conclusions of facts. The appeals by the establishments therefore merit no interference. Conversely, for the same reason the appeal preferred by the Regional Provident Fund Commissioner deserves to be allowed. “
Now your query -
? As mentioned earlier I sought your expert opinion on fixing the EPF contribution at Basic Wage of Rs. 15000 pm.
My only question is that if we change our EPF contribution after the SC order will the regional EPFO under whose jurisdiction my organisation falls will object to such modification.
If so then how do we resolve this problem.
= I'm not clear, do you mean to say you have a consolidated salary/wage of Rs.15000 p.m. which now you try to bifurcate into various allowances (which are discussed in the SC judgment) Am I correct? If so, bifurcation is OK so long as you don't do it with a view to escape from the contribution by coining some new allowances which are not finding place in the SC judgment. Such attempts only will create problem for you. Neither RPFC not going to approve or disapprove your proposal as they have no such a role to play.
? Also if retrospective EPF contribution is to be paid what is the period to be considered.
For eg:
If employee A had PF being deducted on salary and not on Sp Allw but after the SC order we are obliged to pay the PF retrospectively. Now under the said judgement retrospective corresponds to what period as the employee may have been working with us for the last 10 years.
= I cannot conclusively say Yes or No on the necessity on the need to apply the SC judgment in right spirit from retrospective date. One may tend take a narrow view saying the judgment is passed against appeals in specific cases cited therein and therefore others may relax. Then here the catch is, this being the judgment of the apex court,SC, it applies to every where all over the country. I have no doubt all the RPFCs all over India now on will quote this judgment and raise demands and therefore the demand going to be retrospective effect which nobody could rule out. And therefore, I have no answer if you ask me, from which date? Anybody's guess. I'm sorry I don't want to mislead on this aspect. But pl.be prepared for anything.
From India, Bangalore
Dear Mr Kumar
Many thanks for your elaborate response. I have found a new judgement that may help what I am trying to endeavor.
Attached is the SC judgement regarding no restriction on reduction of EPF contribution by the employer even though previously the contribution was above the statutory limit.
My question :
1)Now is this only that in light of this judgement of 2011 can I reduce the EPF contribution of both employer and employee to Rs 15000 eventhough previously my contribution was above the statutory limit.
2)Kindly let me know if you are aware of any judgement that is contrary the judgement attached.
Awaiting your elaborate response which acts like a guiding light to many.
Regards
Anuradha Grewal
From India, Mumbai
Many thanks for your elaborate response. I have found a new judgement that may help what I am trying to endeavor.
Attached is the SC judgement regarding no restriction on reduction of EPF contribution by the employer even though previously the contribution was above the statutory limit.
My question :
1)Now is this only that in light of this judgement of 2011 can I reduce the EPF contribution of both employer and employee to Rs 15000 eventhough previously my contribution was above the statutory limit.
2)Kindly let me know if you are aware of any judgement that is contrary the judgement attached.
Awaiting your elaborate response which acts like a guiding light to many.
Regards
Anuradha Grewal
From India, Mumbai
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