The Employees’ Provident Fund Organisation will start inspecting companies which have split wages and are deducting provident fund contributions on 50% or less of total wages.
EPFO’s additional central provident commissioner in charge of compliance PK Udgata said in an internal circular that “all officers in-charge of field offices are directed to get such establishments inspected where PF contributions has been deducted on 50% or less of total wages. “The inspection has to be completed by field officials by August 31 and the report to be submitted to the EPFO head office by September 7,” the EPFO circular said.
Employers often split wages into different allowances to reduce their PF liability while increasing the net salary of employees. Companies deduct 12% of basic wages of employees for the PF contribution and make a matching contribution.
“Companies offer higher allowances to help raise the net salary of and hence retain talents. There are misuses too. But are such rigid rules necessary? The employees’ contribution should be made optional while making employers’ contribution compulsory,” said Rituparna Chakraborty, president, Indian Staffing Federation and co-founder of TeamLease.
The EPFO noted that many employers were splitting the total wages payable to their employees into several allowances in such a way that the said allowances are covered under the category of exclusions provided under Section 2 (b) (EPF & MP Act 1952). This encourages “subterfuge of splitting of wages to exclude the PF
liability”, the circular said.
As per Section 2 (b) of the Employees’ Provident Fund & Miscellaneous Provisions Act, 1952, the basic wages for the purpose of PF deduction includes all emoluments which are earned by an employees while on duty.
However, the clause provides that basic wages excludes the cash value of food concession, dearness allowance, house rent allowance, overtime allowance, bonus, commission or any other similar allowance payable and any presents given by employer to employees.
Earlier in November 2012, the EPFO issued a circular urging companies to club allowances with basic wages while calculating the PF contribution.
“All such allowances which are ordinarily, necessarily and uniformly paid to the employees are to be treated as the basic wage,” the circular had said.
But a nationwide furore from companies and employees forced the UPA government to put the order in abeyance.
However, a review committee, constituted to look into the clubbing of allowances with basic pay for PF deductions, had supported the idea for enhancing the social security