You
can breathe easy with the government reviewing a circular issued by the
Employee Provident Fund Organization (EPFO) that had asked employers to deduct
the subscription from the gross salary, including allowances, a move that would
have reduced the take-home salary of over 5 crore workers.
A
senior labour ministry official said there was a "rethink" on the
circular that was issued on November 30, although a final decision is yet to be
taken.
The
official added that the circular did not actually change the rules and had not
clarified which allowances needed to be included in the calculation of basic
wage. The circular was meant to ensure that employers did not shirk their
responsibility, the official added.
Officials
said the circular was largely meant to protect employees earning below Rs 6,500
per month (for whom EPF is mandatory). In such instances, there have been cases
where employers have split up the basic wage into various allowances, so as to
reduce its contribution to the EPF.
It
is not mandatory for those earning above Rs 6,500 per month to opt for the EPF,
but once employees opt for EPF, there is no opting out of it till the amount is
withdrawn in full. Many employers expressed reservations after TOI first
reported it on Tuesday as the circular would impact their wage bills.
Typically, high salaried employees in the private sector do not opt for EPF.
Employees
have to contribute 12% of their basic wage towards PF and the amount is matched
by their employers. The issue of employers shrinking the size of the basic wage
and inflating allowances to reduce their PF burden has long plagued the EPFO.
Both
employers and trade unions objected after TOI first reported about it on
Tuesday. "We have sent a letter to the labour ministry objecting to
certain provisions in the circular," D L Sachdev, AITUC national secretary
and trade union representative in the Central Board of Trustees of the EPFO, said. The consent of
the CBT was not taken before issuing the circular, Sachdev added.
Besides,
in a note, consulting firm Pricewaterhouse Coopers
pointed to conflicting judgments on the subject. "Recently, the Madhya
Pradesh high court ruled that allowances that are given universally,
necessarily and ordinarily to all employees form part of the basic salary. The
judgment has been challenged in the Supreme Court and the matter is yet to be
decided. The decision of the SC would perhaps provide a direction in the matter
but till then, this circular is a wake-up call for the employers to review
their position in relation to compensation structure," it said.
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