EPF allowances: Clarification by Jan

This has triggered fear that the net salary of employees may shrink due to higher PF contribution. It will also strain companies who decide to increase their PF contribution and raise the cost to the company (CTC) of employees.

EPFO has said the confusion in defining wages and, hence, the issue of splitting of wages primarily arises from the expression “commission or any other similar allowance payable to the employee” under Section 2(b) (ii) of the EPFO Act.

Although labour ministry officials say there was “no malafide intent” in the circular as far as employees are concerned and it was meant to help assessing officers to detect whether a company was paying the statutory dues adequately or evading them, experts say it has added to the confusion and greater clarity was needed after looking into the legal sanctity.

“Many private companies and MNCs include their own and the employees’ PF contribution within the CTC. In such cases, the employees’ net salary will come down (if the new circular is implemented). In case of PSUs, where employer’s PF contribution is over and above the salary, then employees will be reduced slightly,” said Vineet Agarwal, partner at KPMG.

However, Amitava Ghosh, a senior vice-president of TeamLease, says there is no such threat of the new EPFO circular in reducing the net pay of employees whose basic wages are well above the EPFO eligibility limit of up

... contd.