Law Notifications - EPF Act



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31/07/2011

Confusing circulars on splitting of P.F wages

 Representation by Labour LawPractioners Association,Trivandrum before the Central P.F.Commissinoer, New Delhi-110066

Dated : 1-8-2011

Circular  dt.23-5-2011 about Splitting of Minimum Wages by omitting  the Panjab & Haryana High Court Judgment

 

May I draw your  attention  to your Circular No. Coord/4(6)2003/ClarificationA/ol-ll/7394 dated 23.5.2011 under the caption of "Splitting of minimum wages for the purpose of Provident Fund contribution not permissible".

 

 It is also mentioned that nothing said above shall come in way of implementation/execution of any order of a court of law'. However, we must say that the conclusion drawn in your circular is without referring to the latest judicial pronouncement directly on the subject.

Emphasis has been laid down on the judgment of Division Bench of Karnataka High Court in the matter pf G4S Guardings Limited vs. RPFC and the judgment of Supreme Court in Airfreight Ltd. vs. State of Karnataka & Ors. In fact, the main issue of wages' got obfuscated in the judgment of Karnataka High Court. It did not settle the law with regard to splitting of minimum wages for Provident Fund contributions hence; no weightage can be accorded to it since it had been left open to the Authorities to decide. But it hardly needs to be underlined that they (Authorities) can never go beyond the parameters as laid down by the legislature defining 'wages' under clause (h) of the Minimum Wages Act, 1948 and sub-section (b) of section 2 of the Employees' Provident Funds & Miscellaneous Provisions Act, 1952. Needless to state, that at the time of enactment of section 2(b) defining 'basic wages' under the Employees' Provident Funds & Miscellaneous Provisions Act, 1952, the definition of wages was already there under the Minimum Wages Act, 1948. Sub-section (b) of section 2 of the Employees' Provident Funds & Miscellaneous Provisions Act nowhere prohibits the splitting of minimum wages.

So far as the case of Airfreight Limited (supra) is concerned, this has not been under the Employees' Provident Funds & Miscellaneous Provisions Act but in different context.

Therefore, the recent judgment of 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), is the only direct judgment on the subject of splitting of wages for the purpose of provident fund contribution, which has unequivocally and unambiguously permitted for splitting the minimum wages for the purposes of the Provident Fund. Strangely, this landmark judgment has been overlooked in the Circular for the reasons beyond anybody's comprehension, although one of the officers of Provident Fund Department was the Party - rather Petitioner to it - and he was duly represented by an Advocate. The impugned circular, thus, appears to be motivated to supersede the judgment which could be on'y modified by an amendment in the Act and not by (a) overstepping a contested judgment of Punjab & Haryana High Court (b) by usurping the domain of the legislature.

 It is inexplicable as to why this Circular was not issued for over seven long years after the judgment of the Karnataka High Court but issued with tearing haste i.e. within two months of the reported judgment of Punjab & Haryana High Court. The interpretations as given in the Circular are against the principles of interpretation.

It is pertinent to state here that both the cases of Karnataka High Court G4 and the judgment of Supreme Court in the Airfreight Limited as relied upon in the Circular have been discussed and distinguished by the Hon'ble Punjab and Haryana High Court in detail.

Hence, in the fairness of administrative wisdom and the obligations of an Autonomous Body to honour the sanctity of High Court judgment, the impugned Circular may kindly be withdrawn and the gist of Punjab & Haryana High Court be circulated. It is desirable that a corrigendum be issued immediately in the larger interest of public otherwise; this so-called clarification Circular will confuse, confound and complicate the matter resulting into the opening of the sluice gate of litigation and harassment.

Thanking you,

Splitting of minimum wage for PF not allowed

Add. Central P.F commissioner (compliance) by(K.C Pandey issued a circular by no. coord/4 (6)2003 / clarification/vol-II/ ON DATE 23/05/2011 regarding the splitting of minimum wages for the purpose of PF contribution not permissible. And it was also directed to review all such cases disposed of u/s 7A of the act where determination of dues has taken place on wages lesser than minimum wages.

Minimum wage splitting for Provident Fund EPF Wage allowed!

 EPF department has in recent days created a series of confusion regarding the issue. They are churning our one circular or another saying that Basic Wage or Wage for purpose of EPF wages should not be less than the prescribed minimum wages.

There are no direct clarifications in the act or scheme on this but all the indication in the act are to the contrary indicating the split to be possible.

In a recent case, which was challenged by EPF before a larger bench, and Larger bench has also upheld the order as below.

IN THE HIGH COURT OF PUNJAB AND HARYANA
AT CHANDIGARH

CWP No. 15443 of 2009(O&M)
Decided on : 01-02-2011

Asstt. Provident Fund Commissioner, Gurgaon…. ---------------------  Petitioner

VERSUS

M/s G4S Security Services (India) Ltd. and another ------------------- respondent

It has been clearly held that ….The exclusion clause is fairly large and the exclusions made while determining the basic wage cannot be said to be unjustified unless they are totally at variance and in complete deviation of the concept of the allowances sought to be under the exclusion clause….

Now the question is what is justified split, to me it appears, that Income tax act can give us a clue. It allows 800/- as conv allowance and 40% of basic as HRA as exempted from taxable income, (obviously subject to ifs and buts of income tax act). But then if we keep basic as 60% of total and then Conv as 800/- and rest as HRA, i believe this will be a fair split.

to confuse the matter furthe EPF issued a circular, mentioning an opinion taken from some subject matter, speaking in favour of EPF mandate for obvious reasons, and the circular also mentions certain cases, which we also wish to list below

DCM Limited versus Regional Provident Fund Commissioner 1998 (1)LLJ,979 High Court Rajasthan and Airfreight Ltd. versus State of Karnatka and others AIR 1999 SC 2459.

there the Court was dealing with allowance by the name of ‘good work allowance’ which the employer sought to exclude and which action did not find favour with the Court as it went strictly by the exclusion clause which provided for the limited heads which can be excluded.

Much was said about the judgment of the Karnatka High Court in case titled as

Airfreight Ltd. versus State of Karnatka and others (supra)

but upon perusal of the said judgment, it seems that the Karnatka High Court while determining the issue had remanded the matter back to the Regional Provident Fund Commissioner for decision afresh and in a SLP preferred by the respondents against the said order of remand, the Hon’ble Supreme Court while upholding the “observation made by the Division Bench in its order should not be taken as exclusive but as tentative only and authority would be at liberty to decide the matter in accordance with law without being influenced by it”.

So i beleive that unless the basic wage is deliberately being deflated, to avoid a liability, there seems to be no harm in splitting the wages.

please go through the judgment of Punjab & Haryana High Court in the CWP NO.15443/2009 (O&M), DECIDED ON 1/2/2011 IN THE MATTER OF Asstt Provident Fund Commissioner ,Gurgaon, v/s m/s G4S Securitas Services (india)Ltd & Anr. reported in 2011LLR 316 .which permits bifurcation of minimum wages. The judgment of Karnataka HighCourt. It did not settle the law with regard to splitting of minimum wages for
Provident Fund contributions hence; no weightage can be accorded to it since it
had been left open to the Authorities to decide.
 

ASST. PROVIDENT FUND COMMISSIONER vs. M/S G4S SECURITY SERVICES (INDIA) LTD & ANR [P &H] CWP NO. 15433 OF 2009 (O&M) MAHESH GROVER, J [DECIDED ON 01/02/2011]


Employees Provident Fund (Miscellaneous Provisions) Act, 1952 – basic wages excludes HRA etc – Minimum Wages Act, 1948- Basic wages includes HRA – company excluded HRA, and paid contribution accordingly – PF Commissioner contended that basic wages should be as defined under Minimum Wages Act – whether correct – held , no

Brief Facts: The respondent – company is an establishment which is amenable to the provisions of Employees Provident Fund & Misc. Provisions Act and for the purposes of determining its contribution was taking into consideration the basic wage as given to its employees. The petitioner’s grievance is that the respondents were splitting the wage structure of the employees as a subterfuge so as to dilute its liability and that this was contrary to the wage structure which is to be taken into consideration for the contributions to be made to the Fund under the Act. The precise grievance is that rates of minimum wages which ought to have been taken into consideration are not being done so by the respondents and by splitting up the wage structure there is an evasion of its liability. The Tribunal considered the matter and held that the respondents were right in taking into consideration the basic wage of the employee for determining the contribution to the Fund. The plea of the petitioner was negated which has prompted him to file the instant writ petition.

Decision: Petition dismissed

Reason: On due consideration it is to be noticed that Section 2(b) of the Employees Provident Fund and Miscellaneous Provisions Act, clearly provides that the basic wage 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 may be paid or payable in cash to him but would not include the cash value of any food concession, any Dearness Allowance, House Rent Allowance, Over Time Allowance, Bonus, Commission or any other similar allowance payable to an employee in respect of his employment or work done in such an employment.

It is thus evident that under the provisions of the Employees Provident Fund Act, the definition of wage has an appended exclusion clause in which the various allowances which are quite broad in nature have been provided so as to enable the employee to determine its liability to make the contribution to the fund. The Minimum Wages Act on the other hand provides for a definition of wage which is distinct from that of the basic wage and that definition of wage includes within its ambit House Rent Allowance, but does not include certain other allowances which are being detailed therein. The object and reasons of both the statutes are manifestly distinct even thought they cover the beneficial aspect of the welfare of an employee. The laws of interpretation of statute also provides that nothing more is to be read into the language of a statute and words are to be read and interpreted as they exist to acknowledge the legislative intent. Having regard to the aforesaid, there is little hesitation to hold that the contention of the petitioner is misplaced and that the respondents have rightly excluded certain allowances such as House Rent Allowance, Washing Allowance and Conveyance Allowance while determining the basic wage, and it cannot be said to be unjustified unless they are totally at variance and in complete deviation of the concept of the allowances sought to be under the exclusion clause.

In the Circular there is no reference to the Judgment in ASST. PROVIDENT FUND COMMISSIONER vs. M/S G4S SECURITY SERVICES (INDIA) LTD & ANR [P &H] CWP NO. 15433 OF 2009 (O&M) MAHESH GROVER, J [DECIDED ON 01/02/2011]. It necessitates clarity on this issue.

Newsflash

Splitting up of Minimum Wages for the Purpose of Provident Fund Contribution Not Permissible

(Circular No. Coord/4(6)2003/Clarification/Vol-II/7394 dated 23 May 2011)

INTRODUCTION

The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act) is enacted to provide a kind of social security to the industrial workers. EPF Act mainly provides retirement or old age benefits such as Provident Fund, Superannuation, Pension and Deposit Linked Insurance. Both, employee and employer contribute at specified rate for the scheme. As per section 2(b) of the EPF

Act, Provident Fund (PF) is to be contributed on “basic wages" which means, all emoluments which are earned by an employee while on duty or in accordance with the terms of the contract of employment and which are paid or payable in cash to him. EPF Act does not specify or define any amount as basic wages and hence, it dependents on contractual agreement between the employer and  employee. 

DEDUCTION OF PF ON MINIMUM WAGES

On the above subject, Additional Central Provident Fund Commissioner (Compliance), EPFO, New Delhi has recently issued Circular

No. Coord/4(6)2003/Clarification/Vol-II/7394 dated 23 May 2011 (hereinafter referred as “Said Circular”) to all Additional CPFCs

(Zones) and All RPFCs (In-Charge of Regions/Sub-Regions) instructing the PF authorities to ensure that PF is deducted on  applicable minimum wages.  The aforesaid circular has escalated the controversies pertaining to the definition of Basic wages on which deduction of PF needs to be made. 

BRIEF OVERVIEW OF THE SAID CIRCULAR

Ñ Attention of parties has been invited to an earlier circular No. Coord./4(6)2003/Clarification/13633 dated 6 June 2008, whereby, the PF field officers had been instructed to ensure that P.F. Contributions are remitted on at least the Minimum Wage amounts by the establishments. It was also directed to review all such cases disposed under section 7A of the Act where determination of dues had taken place on wages lesser than Minimum Wages. The Additional Commissioner noted that still an uniform approach was not followed by the field offices, in this regards. It has been referred that The EPF and MP Act, 1952 is a beneficial social security legislation. In construing the provisions of the Act, wherever two views are reasonably possible, the view which helps the achievement of the object should be preferred.

 In light of various court judgments in favor of the department, Additional Commissioner has opined that PF should be payable on applicable minimum wages and correspondingly, minimum wage amount should not be bifurcated into different heads except Basic Salary and Dearness Allowance.

 All the assessing officers and field officers have been directed to ensure strict compliance with aforesaid guidelines in regard to subject matter.

IMPLICATIONS

In view of the said Circular, the PF assessing officers can scrutinize the records of the employer to ensure deduction of PF on  minimum wages and conclude assessment under section 7A of the EPF Act accordingly. Deduction of PF on minimum wages cansubstantially increase the PF liability of the Company considering the fact that currently, salary paid under the head Basic salary and Dearness Allowance can be less than the applicable minimum wages.  VALIDITY OF THE CIRCULAR IN LINE WITH PROVISIONS OF THE ACT AND JUDICIAL PRONOUNCEMENTS . The definition of “basic wages” as per section 2(b) of the EPF Act makes it clear that allowances and incentives are not to be treated as part of the basic wages. This has been upheld by Punjab and Haryana High Court in a writ petition No.15443/2009 between APFC vs.

G4 Security vide order dated 1 February 2011. Punjab and Haryana High Court has opined that minimum wages can be bifurcated into  allowances and PF contribution is not required to be deducted on allowances even when the same are part of the minimum wages.

 EPF Appellate Tribunal, New Delhi vide order dated 2 June 2011, with reference to A.T.A.  no.364 (8)2009 between M/s. BENCHMARK

INFOCOM (P) LTD. – APPELLANT Vs. RPFC – INDORE – RESPONDENT has held that the authority has no power to hold that  minimum wages amounts to basic wages nor the authority has power to determine the amount of wages to be paid to the employees under Minimum Wage Act. EPF Tribunal has placed reliance on judgment of Punjab and Haryana High Court as mentioned above. It is pertinent to note that the aforesaid judgment of EPF Tribunal is subsequent to the Said Circular of Additional Commissioner dated  23 May 2011. 

 The following valid arguments are put forth by Employers:

-  There can be practical difficulties in implementing the Said Circular even if the same were to be implemented. The minimum wages fall under the State powers and are determined by each State Government independent of each other. Even the definition of  minimum wages as adopted by different State Governments varies from state to state. Therefore, it would be difficult to link the same with the EPF and MP Act, 1952, which is enacted by the Central Government. 

-  An internal circular issued by the EPF department is not binding on the employer and the validity of the same can be challenged in Courts of law. 

CONCLUSION

The Said Circular is a significant step by the PF department to ensure that PF contributions are made on at least the amount of Minimum Wages. Given that most organizations may have significant workforce and thereby large exposure to PF contributions, this circular and the corresponding executive actions based on the same, can be a major cause of concern in case their PF contributions are currently on an amount lower than that calculated on Minimum wages. The authorities may try to act retrospectively on all contributions made after the first circular of 2008. However, the organizations can take shelter under the various judicial pronouncements on the subject and other arguments available to them. Till the time, EPF Act is actually amended or till there is a Supreme Court ruling in the matter, controversy on the subject matter shall prevail.

Anil Narayan, adv

 
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