'Supreme Court judgment is literally a bonus for employees'

The Supreme Court's judgment on Thursday stated that the Employee Provident Fund (EPF) contribution will be on the total salary amount, which includes all the allowances paid to an employee, and not just on the basic salary

Do not be surprised with a revised salary structure from your company, which might dearly impact your pocket. The Supreme Court's judgment on Thursday stated that the Employee Provident Fund (EPF) contribution will be on the total salary amount, which includes all the allowances paid to an employee, and not just on the basic salary.

B B Shetty, a chartered accountant welcomed the ruling, "Even today, many firms would show a reduced basic salary for their employees and adjust a maximum portion of their salary towards allowances, wherein they would contribute a small percentage towards EPF, which the EPF Act was always clear about, but manipulation continued at the ground level."

An EPF consultant said, "Many employees working in call centres and small firms drawing a monthly salary of Rs 20,000 and above, have a major portion of their salary adjusted towards various allowances and their basic salary is shown below Rs 5,000-Rs 10,000, only to deduct a small portion of the provident fund component. These employees were deprived of their social security. It is for such firms that the salary structure will need to be revised and made uniform."

Asked if this also means that the cash-in-hand component would reduce for the employees, the consultant replied in the affirmative, "The cash in hand might be impacted marginally but in the long run, they will have secured funds in EPF."

Madan Nahar, another chartered accountant said, "The cash-in-hand component is more crucial to meet expenditures. Moreover, for years, EPF deduction has always been on the basic salary, which in other words means more deductions and less cash in hand for the employees. Salary structures will have to be made uniform in all sectors. I think the government should clarify this."

On the other hand, advocate Vinod Sampat says, "This judgment will help the employees. It's literally a bonus for them. Now, employers who have not paid their proper contribution towards EPF will have to enhance their contribution. The PPF authorities should clarify from which date the contribution on allowances would be applicable."

A senior official from the Employee Provident Fund Organisation in New Delhi said, "Those earning a basic salary of above Rs 15,000 per month may voluntarily contribute towards EPF; it is not mandatory for them...We have come across cases where a large chunk of money would be given under allowances, and others where special allowances would be almost 30 to 40 per cent of the monthly salary, which is not as per the Act. Our records state that a large number are still not covered in this and we have to ensure they come under the social security cover."

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