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Landmark judgement by Supreme Court - PF contribution on other allowances - The Employees Provident Funds and Miscellaneous Provisions Act, 1952

It is held by the court that special allowances paid to the employees will attract PF Contribution ( up to statutory Basic salary limit of Rs. 15,000/- P.M. in other words those employees whose basic salary + Dearness allowance is more than Rs. 15,000/- P.M., will not be impacted by this judgment)

 Court had relied upon its own judgment in the matter of Bridge and Roof Co. (India) Ltd. vs. Union of India, (1963) 3 SCR 978, it was held that

  1.  whatever is payable by all concerns or earned by all permanent employees had to be included in basic wage for the purpose of deduction under Section 6 of the Act.
  2. It is only such allowances not payable by all concerns or may not be earned by all employees of the concern, that would stand excluded from deduction.

 It was held that certain allowances which are variable in nature, which may vary from individual to individual according to their efficiency and diligence and which are linked to any incentive for production resulting in greater output  will stand excluded from the term “basic wages”

 It also held that allowances which are not paid in all concerns and not earned by all the employees will not form part of basic wages, similarly the allowances which are earned by certain category of employees will not form part of basic wages.  

 Supreme court also observed that no records 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.

 Implications of this judgment: In our opinion in view of this judgment EPFO may claim PF contribution in respect of the employees whose Basic salary+ Dearness allowance is less than Rs. 15,000/- P.M. clubbing other allowances which falls under the parameters laid down by the apex court in the above judgment. 

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