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8/12/2015

PFContributionisn'tPayableonCTCasperCPFCNotification

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PFcontributionunderSection6isnotpayableonCTC
Anotificationisissuedon18thMarch,2014afterthe
approvalofCPFCinordertoclarifyprovidentfund
contributionundersection6isnotpayableonCostto
Company(CTC).Belowisanexceptofthenotification.
Itisobservedthattheimportofsection6ofthe
EmployeesProvidentFunds&Miscellaneous
ProvisionsAct,1952isnotcurrentlyunderstoodby
someofthefieldofficeswhichresultsincomplaintsand
ismanytimesacauseforunnecessarylitigation.They
areunwittinglyaskingemployersnotonlytopay
contributionsoncosttocompany(CTC)butarealso
questioningthemonwhyreflectingofemployers
contributiontoprovidentfund(PF)underCTCbenot
treatedasadeductionbythemfromemployeessalary
andconsequentlywhythisbenottreatedasaviolation
bytheemployerofparagraph31oftheEmployees
ProvidentScheme,1952.
Manyoftheemployersintodaysworldgivethebreakup
oftheoutgoingsunderdifferentheadsasCTCinthe
appointmentletterissuedtoanewemployee.CTCisthe
totalcost,generallyonayearlybasis,whichan
employerincursonanemployeeduringhisemployment/servicesofhisholdingofficeinthe
company/establishmentandisnormally/generallymuchabovethewageceilingonwhichPFispayable
undertheactandtheschemes.
Basicwagesasdefinedundersection2(b)oftheactmeansallemolumentswhichareearnedbyan
employeewhileondutyoronleaveinaccordancewiththetermsofthecontractofemploymentbut
doesntincludeamongotherthings
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8/12/2015

PFContributionisn'tPayableonCTCasperCPFCNotification

HRA
OvertimeAllowance
Bonus
Commission
Anyothersimilarallowancepayabletotheemployee
Section6whichdealswithcontributionsaysthatThecontributionwhichshallbepaidbythe
employertothefundshallbeacertainpercentageofthebasicwages,dearnessallowanceand
retainingallowance(ifany)forthetimebeingpayabletoeachoftheemployees.Thus,contribution
undersection6ispayableonlyonbasicwages(whichexcludesHRA,OvertimeAllowance,Bonus,
Commissionetc.),dearnessallowance(whichincludescashvalueofanyfoodconcession)andretaining
allowance,ifany.
Emolumentsmeansallearningsbyanemployeefortheworddonebyhiminanestablishmentand
includesBonus,Commissionetc.whereas,basicwages(asdefinedintheAct)expresslyexcludesthese
items/components.
CTCcantbethereforeconstruedtomeanemolumentswhichareearnedbyanemployeewithinthe
meaningofthetermbasicwagesasgivenundersection2(b)oftheActandcontributionundersection
6oftheActcantbethuschargedonCTC.
Paragraph31oftheEmployeesProvidentFundsScheme,1952statesthatNotwithstandingany
contracttothecontrarytheemployershallnotbeentitledtodeducttheemployerscontributionfromthe
wageofamemberorotherwisetorecoveritfromhim.
ThoughwageisnotdefinedintheActorScheme,whencosttocompanyisthesumtotalofallthe
earningsofanemployeeinayearandincludesallexpensesmadebythecompanyonhimforhisservices
andcontributionaspersection6oftheActisonlyoncertaincomponentsofwage(asnotedinPara4
above)onwhichPFisdeductible/payablebytheemployer,itcantbeallegedthattheemployeris
deductingtheemployersshareofcontributiontowardsPFfromthewageoftheemployeeoris
otherwiserecoveringitfromhimandistherebyviolatingpara31oftheEPFscheme,simplybecausehe
isshowingitasacomponentofCTC,moreso,ifheisshowingthecontributionpayablebytheemployer
separatelyinthebalancesheet.Itisthusnotwrongiftheemployerisshowingemployersshareof
providentfundcontributionasapartofCTCoftheemployee.
Intheviewoftheabove,theemployersshareofPFcontributionbookedasapartofCTCinrespectof
hisemployeesbytheemployerdoesnttantamounttomeanthattheemployerisdeductingemployers
contributionfromthesalaryoftheemployees.Accordingly,allcomponentsofcostofcompanycantbe
treatedasemolumentsundersection2(b)oftheEPF&MPAct,1952.
Further,itmaybenotedthattheaboveinstructionswouldapplyonlyifthecontributionsundersection6
arebeingreceivedonanamount(ofwage)whichisequaltoormorethanthewageceiling.Underno
circumstancesshalltheemployerbepermittedtosegregatetheCTC/salaryintosuchcomponentssoas
tobringtheamount(ofwage),onwhichcontributionispayablebyhimundersection6oftheact,below
thewageceilingprevailing.
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Abouttheauthor
ArtiSehgalisaHRConsultant&SocialMediaManageratFarsightHRTechnology
SolutionsCompany

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