EMPLOYMENT LAW UPDATE
19th November, 2024
Issue No. 21/24-25
RETENTION ALLOWANCE FORMS PART OF BASIC WAGES IN PF CALCULATION
In a crucial judgement passed by the Bombay High Court, Nagpur Bench on 11th November, 2024, it was ruled that retention allowance paid to seasonal workers is to be included in the calculation of Provident Fund (“PF”) contribution under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (“EPF Act”).[1] This decision by the Bombay High Court throws light on a deeper legal interpretation of the definition of “Basic Wages” as mentioned under Section 2(b) of the EPF Act.
BACKGROUND
The case arose from a writ petition filed by the Maharashtra State Co-operative Cotton Growers’ Marketing Federation Limited against the order passed by the PF Authorities who realized that the Federation was not making contribution to the Employee’s PF, Family Pension Fund and Insurance Fund from 1991 to 2008. The employees were seasonal workers who were given a retention allowance during their off season. The PF Authorities gave directions for the retention allowance to be included while the calculation of PF is being made, while the employer argued that retention allowances are not considered “basic wages” under the definition of wages mentioned in the EPF Act.
COURT’S FINDINGS
The point of dissension was whether ‘retention allowance’ paid to seasonal workers with an intention to secure their availability in future, forms a part of “basic wages” or not. While the employer argued that retention allowances are not a part of basic wages as they do not relate with the performance of service but a method for securing employment for the future. On the contrary, the PF Authorities argued that retention allowances are a part of the “basic wages” as they ensure the continuity of the employer- employee relationship. They are regular payments made to the workers which form an important part of the remuneration given to the them and therefor retention allowances are to be considered as a part of “basic wages”.
The much-discussed definition of “basic wages” under Section 2 (b) of EPF Act expressly mentions certain allowances that are excluded from forming a part of wages and there is no mention of retention allowances being excluded from “basic wages”. The High Court took reference of the Supreme Court ruling in the case of Managing Director, Chalthan Vibhag Sahakari Khand Udyog, Chalthan, District Surat Vs. Government Labour Officer And Ors[2], where the concept of retention allowance payable to seasonal workers was clarified, and the court broadly interpreted the definition of “basic wages” and included all regular payments expect for those explicitly excluded. Since, retention allowances are not expressly mentioned to be excluded the high court ruled that they form a part of basic wages and therefore ruled in favor of the PF Authorities.
CONCLUSION
The ruling becomes critical while analyzing the extent and scope of “basic wages” and gives more accuracy about the interpretation of allowances under the EPF Act. This decision by the Bombay High Court further strengthens the rights of the seasonal workers and protects their interest. Industries that employ seasonal workers must include retention allowance in their PF calculation. Although this ruling imposes additional responsibility on the employers, it maintains the spirit of the EPF Act and fulfils the objective of providing social security and fair treatment to all employees.
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[1] WP No. 1268 of 2011.
[2] MANU/SC/0325/1981