Finally the employee’s provident fund organization (EPFO) give attention to the basic wages definition which in the rule of provident fund organization and employers get benefits of it.
Until now, employers were splitting the wages into various allowances; keeping the Basic + DA on a lower side to avoid high contribution to PFO, thereby increasing the employees cash Income. The words in sub-clause (ii) which mentions “any other similar allowance payable” was interpreted to be “any other allowance payable”.
In the new rule all such allowances which are ordinary, necessarily or uniformly paid to employees by the employer are to be treated as part of basic wages. However provident fund does not include certain allowance like cash value for food concession or dearness allowance. A complete list of allowable and non-allowable allowances is yet to come from the provident fund organization.
The rule is to contribute 12 percent of wages by the employer as well as by the employee to the provident fund.
Impact of new rule
To employer- employer needs to pay more. When allowances are added to the wages, the employer needs to contribute more in the provident fund.
To employee- More salary, less cash in cash. Employee will get more salary as more contribution comes in the provident account from the employer. But he gets less cash in hand as on allowances amount PF contribution will be deducted.
Provident fund department tries to cover more and more employees in PF. However, the minimum drawings is 6500 Rs. With which the employee cover under PF rule. Employer often show the amount in other allowances such as House rent allowance or etc. to escape from PF contribution. So this is the welcome step for the employees.