Understanding of basic wages before we go into the judgment of 2023 LLR – madras high court – w.p. no. 6966 and m.p. no. 2/2014 dated 2/1/2023 – trident facility services v/s EPFO appellate tribunal, New Delhi
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Understanding of Basic Wages Before We Go into The Judgement of 2023 LLR – Madras High Court – W.P. No. 6966 And M.P. No. 2/2014 Dated 2/1/2023 – Trident Facility Services V/S EPFO Appellate Tribunal, New Delhi
Meaning of Basic Wages and what salary components falls or does not fall within the purview of basic wages:
Basic wage, under the Act, has been defined as all emoluments paid in cash to an employee in accordance with the terms of his contract of employment.
But it carves out certain exceptions which would not fall within the definition of basic wage and which include dearness allowance apart from other allowances mentioned therein.
But this exclusion of dearness allowance finds inclusion in Section 6. The test adopted to determine if any payment was to be excluded from basic wage is that the payment under the scheme must have direct access and linkage to the payment of such special allowance as not being common to all.
The crucial test is one of universality. The employer, under the Act, has a statutory obligation to deduct the specified percentage of the contribution from the employee’s salary and make a matching contribution. The entire amount is then required to be deposited in the fund within 15 days from the date of such collection.
Basic wage, would not ipsofacto take within its ambit the salary breakup structure to hold it liable for provident fund deductions when it was paid as a special incentive or production bonus given to more meritorious workmen who put in extra output which has a direct nexus and linkage with the output by the eligible workmen. When a worker produces beyond the base or standard, what he earns was not basic wage. This incentive wage will fall outside the purview of the basic wage.
Background of the writ petition filed
EMPLOYEES’ PROVIDENT FUNDS AND MISCELLANEOUS PROVISIONS ACT, 1952
Sections 7A – EPF Authority discarded splitting the wages into Basic, House Rent Allowance (HRA), and Over Time Allowance (OTA) –
Petitioner was directed to remit EPF contributions on the basis of the notified minimum wages –
The appeal filed by the petitioner was rejected –
Petitioner challenged the order of the lower authorities in a writ petition –
Held, the petitioner has contended that definition of Basic Wages under section 2(b) read with section 6 of the Act does not include HRA and OTA –
Contention of EPF Authority has contended that petitioner is required to comply with the Labour Laws, including the Minimum Wages Act – As per settled law basic wages defined under section 2(b) contains exceptions and will not include what would ordinarily not be earned in accordance with the terms of the contract of employment – However, whatever is payable in all concerns and is earned by all permanent employees is included in ‘basic wages’ – But whatever is not payable by all concerns or may not be earned by all employees of a concern are excluded for the purposes of ‘basic wages’, attracting EPF contributions – Dearness allowance and Retaining allowance, payable to all permanent employees will attract EPF contribution – But, house rent allowance, not paid in many concerns and sometimes in same concern, paid to some employees but not to others, is excluded from basic wage – Overtime allowance not earned by all employees is excluded from basic wage – Emoluments earned by an employee in accordance with the terms of employment, would qualify as basic wage and discretionary allowances not earned in accordance with the terms of employment would not be covered by basic wage –
As such, the contributions made by the petitioner on the basic pay excluding these allowances cannot be strictly found fault with
The requirement of EPF contributions on notified minimum wages is not proper since there is no enabling power conferred on EPF Authority to adopt such powers for the purpose of calculation of the EPF contributions
Wages paid less than minimum wages in violation of the law cannot be paid but it does not imply that for calculation of EPF contribution, the employer could not follow statutory provisions of the EPF Act
Minimum Wages Act is a self-contained Act/Code, providing for payment of minimum rates of wages
Section 22 of the Minimum Wages Act takes care of the instances when an establishment contravenes the mandatory requirements of the payment of minimum wages and is imposed penalties thereunder
Hence, impugned orders are quashed
The writ petition is closed accordingly. Paras 6 to 9 and 15
For Petitioner: Mr. S. Ranjith Kumar, Advocate.
For Respondent No. 1: Court.
For Respondent No. 2: Mr. V. Sundareswaran, SSC.
IMPORTANT POINTS FOR CLOSURE OF WRIT PETITION BY THE COURT
Definition of Basic Wages under section 2(b) read with section 6 of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 does not include HRA and OTA.
As per settled law, basic wages defined under section 2(b) of the Act contain exceptions and will not include what would ordinarily not be earned in accordance with the terms of the contract of employment.
Whatever is payable in all concerns and is earned by all permanent employees is included in ‘basic wages’.
Whatever is not payable by all concerns or may not be earned by all employees of concern are excluded for the purposes of ‘basic wages, attracting EPF contributions.
Dearness allowance and Retaining allowance, payable to all permanent employees will attract EPF contribution.
But, house rent allowance, not paid in many concerns and sometimes in same concern, paid to some employees but not to others, is excluded from basic wage.
Overtime allowance not earned by all employees is excluded from the basic wage.
Emoluments earned by an employee in accordance with the terms of employment would qualify as basic wage and discretionary allowances not earned in accordance with the terms of employment would not be covered by basic wage.
Contributions paid by petitioner-employer on the basic pay excluding these allowances cannot be strictly found fault with.
Requirement of EPF contributions on notified minimum wages is not proper since there is no enabling power conferred on the EPF Authority to adopt such powers for the purpose of calculation of the EPF contributions.
Wages less than minimum wage in violation of the law cannot be paid but it does not imply that for calculation of EPF contribution, the employer could not follow statutory provisions of the EPF Act.
Minimum Wages Act is a self-contained Act/Code, providing for payment of minimum rates of wages.
Section 22 of the Minimum Wages Act takes care of the instances when an establishment contravenes the mandatory requirements of the payment of minimum wages and is imposed penalties there under by the Authority under the Minimum Wages Act, 1948.
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