In what can be said to be a great development for Employees’ Provident Fund, the Supreme Court recently ruled a verdict which will now disallow companies from exempting special allowance from the basic salary. Therefore, they will have to include the special allowance in the deductions made for the Provident Fund (PF).
However, the judgment will not affect the employees with a basic salary of or less than ₹15,000.
HR Experts at D. Batra & Co. have studied the verdict and they say, “The verdict is set to increase the financial burden on the companies as they provide the employees with Special allowance, Convenience Allowance, Education Allowance, Canteen Allowance, Medical Allowance etc. along with basic salary”
But as per the verdict, they will now have to pay the special allowance and PF separately along with basic salary.
For example, if an employee has a basic salary of ₹6,000 and receives ₹14,000, then the company will now have to deduct the Provident Fund for ₹20,000. Thus, the company will face a financial burden on them.
As per the new provident fund rules, both employer and the employee pay 12 per cent of basic wages each towards contribution to EPF. Alongside, the Employees Provident Fund Organisation (EPFO) will take stringent action against firms not factoring special allowance for EPF computation.