The Employees' Provident Fund and Miscellaneous Provisions Act, 1952 ("EPF Act") as we all know, has been enacted to provide retirement benefits to the employees eligible to receive the same and has always been a subject of much discussion and debate.
The Hon'ble Supreme Court of India ("SC") on February 28, 2019, in the matter of West Bengal v. Vivekananda Vidyamandir & Others issued a judgment on the law governing calculation of the provident fund contributions under the EPF Act. The SC (whilst disposing off multiple appeals),1 decided on the issue of whether certain allowances (particularly 'special allowance') are to be taken as part of 'basic wages' for the purpose of computation of provident fund contribution in accordance with the provisions of the EPF Act. Whilst the SC judgement is being hailed as a landmark judgement which is changing the way that contributions are being calculated under the EPF Act, the reality is that the SC has only reiterated what has already been set out under various judgements and therefore there is no question of this being new law but only a fresh statement on what has already been law as set out by the SC in its decision in the case of Manipal Academy of Higher Education v. Provident Fund Commissioner2 which followed the principles laid down in previous judgments by the court in Jay Engineering Works Ltd. and Ors. v. The Union of India (UOI) and Ors.3; Bridge & Roof Co. (India) Ltd. v. Union of India (UOI)4 etc.
In the most recent case, the SC held that the allowances were to be included in the definition of "basic wages" since the employers had not demonstrated that they were variable or "linked to any incentive for production resulting in greater output" and further no material was produced by the employers to demonstrate that the allowances were not paid universally to all employees in a particular category or that they were "being paid especially to those who avail the opportunity".
In short, as had been laid out earlier, the SC, in its current judgment, has held that allowances which are made universally, ordinarily and necessarily to all employees across the board or to all employees in a particular category/grade will fall within the definition of 'basic wages' for the purposes of computation of provident fund contributions. The SC has also clarified that in order for an amount to not be included as "basic wages", it has to be shown that the workman concerned has become eligible to get this extra amount beyond the normal work which he was otherwise required to put in.
Consequently, the SC has reiterated (and upheld) the position that, in addition to the basic wage, dearness allowance and the retaining allowance paid to the employee eligible for contributions under the EPF Act (in case they form a part of the salary structure/components of the employee) all other allowances (other than House Rent Allowance which is specifically excluded under the definition of "basic wages"), forming a part of the employee's salary and that are universally, necessarily and ordinarily paid across the board to all the employees, would form a part of/ constitute 'basic wage' for the purpose of computation of the contribution towards provident fund under the EPF Act. Employers should keep this in mind when determining the provident fund contribution to be made with respect to eligible employees under the EPF Act.
1 Surya Roshni Limited v/s Employees Provident Fund and Others; U-Flex Ltd. v. EPFO and Another; Montage Enterprises Pvt. Ltd. v. EPFO and Another; and The Management of Saint Gobain Glass India Ltd. v. The RPFC, EPFO
2 (AIR 2008 SC 1951)
3 (AIR 1963 SC 1480)
4 (AIR 1963 SC 1474)
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