The Supreme Court judgement pertained to 5 different petitions with similar facts (*1). In all of the cases, the employers had excluded various types of allowances from basic wages for determining the contribution amount payable under the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 and associated schemes (“EPF Law”).
The common question of law in all these cases was whether the special allowances paid by an establishment to its employees would fall within the ambit of ‘basic wages’ for the purpose of computation of contribution towards provident fund. The Supreme Court passed a common order considering the similarity of facts in all 5 cases.
The Supreme Court relied on the Bridge Roof judgement (*2) and other earlier judgements to reiterate that the following tests are to be adopted to determine if any payment is to be excluded from basic wage:
a) Whether the payment has a direct access and linkage to the payment of such special allowance as not being common to all (test pertaining to universality).
b) Whether the payment is made to those who avail an opportunity or by way of special incentive.
The Supreme Court further opined that in order to contend that an amount goes beyond basic wages, it has to be shown that the workman concerned had become eligible to get the extra amount beyond his normal work, which he was otherwise required to put in.
The above judgment is a welcome clarification for all employers as it lays rest to a long standing controversy, pertaining to the components of a salary, that are to be taken into consideration while computing provident fund contribution.
(*1) The Supreme Court passed a common order for the following cases: The Regional Provident Fund Commissioner (II) West Bengal v Vivekananda Vidyamandir and Ors, Surya Roshni Ltd. v Employees Provident Fund and Ors., U-Flex Ltd v Employee Provident Fund and Anr., Montage Enterprises Pvt. Ltd. v Employees Provident Fund and Anr., The Management of Saint-Gobain Glass India Ltd. v The Regional Provident Fund Commissioner, Employees’ Provident Fund Organization.
(*2) Bridge and Roof Co (India) Ltd v. Union of India, 1963.