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RECKLESS SPLITTING OF WAGES INTO ALLOWANCES FOR EPF WILL COST DEARLY TO THE EMPLOYERS-- LLR


RECKLESS SPLITTING OF WAGES INTO ALLOWANCES FOR EPF WILL COST DEARLY TO THE EMPLOYERS
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Labour Law Reporter has been persistently warning the subscribers to adopt protective wage structure in view of the judgments of High Courts upholding all allowances except HRA will form part of basic wages for EPF contributions.  Now the Supreme Court in its judgment dated 28.2.2019 reported in 2019 LLR 399. has upheld the judgments of the High Courts.  An appeal by EPFO against judgment of Calcutta High Court has been accepted by the Supreme Court holding that special allowance will also form the part of wages for EPF contributions.
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            While issuing the appointment letters to the employees the employers' recklessness is found to be most shocking. The discrepancy with regard to the splitting of many allowances speaks volumes about the glaring irresponsibility. As a result of it, the employers are often caught in the dragnet of the PF authorities, who derive perverted pleasure in harassing them. It is seen that some employers split the wages into allowances without considering as to what for that allowance is given.

For instance, special allowance is invariably even by the employers, in addition to basic wages, but when questioned as what is the speciality for giving a special allowance, no valid clarification is offered.  

While coming across such anomalies the 'Labour Law Reporter' had been exhorting subscribers particular employers covered under the Employees' Provident Funds & MP Act, that these allowances can create problem for them since Gujarat, Madhya Pradesh and Madras High Courts have held that all the allowances other than house rent allowance would attract provident fund contributions. Despite that many employers have not cared to rectify. Now the Supreme Court has upheld the judgments of the above High Courts including that of Calcutta High Court holding that special allowance will attract provident fund contributions. This may lead to heavy financial liability in addition to interest, damages, even prosecutions and loss of face for the organisation. 

Hence, instead of recklessly adopting the wage structure of any other establishment, the employers must consider as to whether it would be excluded under the Employees' Provident Funds & MP Act for attracting contributions and also if there is any supporting justification.  Accordingly, the Labour Law Reporter in the interest of the subscribers cautions the employers to revise their wages structures particularly those who are covered under the Employees' Provident Funds & MP Act.

For full judgment visit : www.labourlawreporter.com

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