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EPFO to inspect firms splitting wages to reduce PF liability

Exercise of inspecting the firms deducting PF on 50% or less of total wages, to be completed by August 31

Press Trust of India  |  New Delhi 

In a bid to deal with issue of splitting of wages by employers, retirement fund body EPFO has asked its over 120 field formations to inspect firms which are deducting PF on 50% or less of total wages.

The employers often split wages into different allowances to reduce their PF liability and also increase the take home pay of their workers. The provident fund is deducted as percentage of basic wages.

At present 12% of basic wages is deducted as employees' contribution towards social security schemes run by the Employees' Provident Fund Organisation (EPFO) and an equal amount is contributed by employers.

"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," an office order said.

According to the order, the exercise of inspecting the firms deducting PF on 50% or less of total wages, must be completed by August 31.

The EPFO headquarters have asked the field formations to submit a report in this regard by September 7.

EPFO pointed out, "instances have come to notice where total wages of employees' are splitted by employers to the extent that PF liability is reduced up to 50% of total wages."

It observed in the order that "many employers split 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)....Encouraging subterfuge of splitting of wages to exclude the PF liability."


As per Section 2 (b) of 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, EPFO has issued a notification for clubbing of wages but that was put in abeyance later on.

However, a review committee, constituted to look into the nitty-gritty of clubbing of allowances with basic pay for PF deductions, had supported the idea for enhancing the social security benefit under the schemes run by the EPFO.

The notification issued on November 30, 2012, had said: "All such allowances which are ordinarily, necessarily and uniformly paid to the employees are to be treated as the basic wages".

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First Published: Thu, August 07 2014. 14:54 IST
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