SC rejects plea seeking clarity on restructuring wages for EPF deduction

The Supreme Court (SC) has dismissed a review petition filed by a section of industry, which sought clarity on its judgment on restructuring wages for deducting Employees’ Provident Fund (EPF) contribution, leaving companies confused about the implementation of the order. 

In its February 28 judgment, the apex court had said certain allowances should be a part of the “basic wages” for computing the EPF deductions — a move which had the potential of significantly increasing the wage bills of companies. This was more so because the SC had not given any clarity on the date of implementation of its order. 

One of the petitioners in the case, Surya Roshni Ltd, had moved the apex court with a review petition seeking clarity on various aspects of the judgement — most importantly on whether the order was meant to be followed prospectively or retrospectively by the industry. However, the SC dismissed the review petition on August 28. 

“There is a lack of clarity about when the court’s order will come into effect. We know for sure that going forward, it has to be made operational and to the best of my knowledge, the industry has made it operative from April 1, 2019. We, however, await clarification from the government,” said Pradeep Bhargava, president, Maratha Chamber of Commerce, Industries and Agriculture. 

While giving its order, the Supreme Court had said that allowances, which are paid to all employees, will come within the definition of basic wages. 

Over the years, the industry had been relying upon the definition of wages, according to Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, which included basic wages and dearness allowances as the components for computing provident fund contribution. 

Following the apex court’s judgment, various companies had received notices from regional offices of the Employees’ Provident Fund Organisation (EPFO) for inspection of past records to determine their salary structures. 

However, incidentally, the day the SC dismissed the review petition, the EPFO issued an internal note, approved by its central provident fund commissioner Sunil Barthwal, asking its field officers to deter from such inspections on wage structures. However, the note added that “no coercive action shall be taken for recovery of EPF dues till disposal of the review petition filed by concerned employers which is pending before the Supreme Court”. 

At present, inspectors are allowed to assess dues and inspect old records with no time limit. 

“Now that the review petition has been dismissed, there is ambiguity among employers on whether the SC order should be implemented from past years as the case was ongoing for 10 years in various courts. The government needs to clarify,” a person associated with a top industry chamber said. 

The Union labour and employment ministry had recently proposed amendments to the EPF Act 1952, proposing a limitation period of five years for inspection and mooting a standard definition of wages across all labour laws. 

According to the proposal, the “wage”, on which statutory deductions towards provident fund, insurance, gratuity and others are made by employers, will include basic pay, dearness allowance and retaining allowance as its component. However, various other allowances — in the form of house rent, leave travel, overtime, among others — are proposed to be capped at 50 per cent of the “wage”.