Contact Information

Theodore Lowe, Ap #867-859
Sit Rd, Azusa New York

We're Available 24/ 7. Call Now.

(888) 456-2790

(121) 255-53333

Find us here

Special Allowance

Team Lawyered
Team Lawyered
  • Sep 27, 2019
  • 10 min to read
Special Allowance Lawyered

Author - Associate Shereen Abdin

In recent times, so many discussions have happened on Special allowance being part of PF calculation. Earlier, the companies were deducting PF only on basic salary, dearness allowance and retaining allowance. But the Supreme Court of India after participating in the Regional Provident Fund Commissioner West Bengal vs. Vivekananda Mandir on February 28th, 2019 announced that special allowance has to be mandatorily taken into account while calculating the PF. This decision has both the elements, benefits and drawbacks.

The drawback is that the employee takes home a less salary due to more deduction. However, the assertive side of the situation is that the contribution towards EPF increases which would fetch more amount in the future. It will provide great retirement benefits in turn.

The Supreme Court’s Judgement on PF Contribution

The Supreme Court shared exciting news for employees of Special allowance being clubbed with a basic salary for PF calculation to benefit employees drawing less salary on long-term. This covers 12% of basic salary contribution to the PF account, every month.

Formal Judgement

The Supreme Court declared the formal judgement on 28th February 2019, effecting immediately and notified a verdict saying, “Under basic wages, the special allowance will be covered as conveyance, education, medical, special holidays, night shift allowance, transportation charges and other incentives.

Impact of the Judgement

The judgement was not favourable for low-salary employees and opposed saying this was not fair to deduct special allowance from basic wages for PF deduction. It will affect the employee’s salary and results in low take-home salary and on companies, as they have to share more towards the Provident Fund, on the employers' side.

Impact on Salary

It has become compulsory for employees who earn a salary of less than Rs.15,000 to contribute to PF funds. Earlier the PF calculation included only basic wages and so the employee enjoyed the freedom of drawing more salary home. For example, if your basic salary is Rs.20,000, the PF contribution every month counts to Rs.2,400 which is calculated at the rate of 12%. The employer also provides an equal contribution.

The Court has affirmed that the contribution towards EPF obligatory for employees fixed with Rs.15,000 salaries and this contribution remains unchanged even if the basic pay is incremented later on.

If your employer pays you 10, 0000 basic salary and 10,000 special allowances, then the PF contribution every month would be 1800 only, considering your basic salary. Now, the situation has become complicated, leading to more deduction for PF, both for employer and employee.

After this new rule imposed by the Supreme Court, the total PF deduction covers from Special allowance as well. Now the employee has to pay twice the amount towards the PF, which will be reduced from the take-home salary. It will affect those who earn a minimum salary of less than Rs.15,000, such as domestic workers, junior staff whose survival will become much more difficult.

The employer has got the added liability of paying Rs.3,600 instead of Rs.1,800 after this verdict. This raises for each employee, which puts more pressure on the company.

Contribution Calculation

The entire 12% of your contribution goes into your EPF account along with 3.67% (out of 12%) from your employer, while the balance 8.33% from your employer’s side is redirected to your EPS (Employee’s Pension Scheme) and the remaining amount goes into your EPF account.

The interest gained is transferred to the employee’s account.

Conclusion

It is not comforting news for domestic labourers who rely on their salary to survive. However, It does not affect employees earning more than Rs.15,000 per month as the employer contributes the 12% and there is a provision of skipping the provident fund scheme or can limit their contribution to a minimum of Rs.15,000.

If the net salary of the employee is reviewed after evaluations, then the employee acquires the benefit of taking home more salary. So, the companies are looking at providing better compensation to its employees shortly to motivate them and have a mutually profited relationship.

Team Lawyered
Team Lawyered

Lawyered is a legal tech initiative designed to change the way people interact with and within the legal industry. We believe that access to critical services like legal should be just a click away. Our team is working to bring legal online, making it cost effective, high quality and accessible for all.

Comments:

Blog Comment
Sophie Asveld

February 14, 2019

Email is a crucial channel in any marketing mix, and never has this been truer than for today’s entrepreneur. Curious what to say.

Blog Comment
Sophie Asveld

February 14, 2019

Email is a crucial channel in any marketing mix, and never has this been truer than for today’s entrepreneur. Curious what to say.

Leave a comment: