Special allowances to be included in “Basic wages” for deducting PF – Supreme Court

Supreme Court in the case of Regional Provident Fund Commissioner (II) West Bengal Vs Vivekananda Vidyamandir and others (Order dated 28th February 2019)


Facts of the case:

  • Employer organization (registered under Provident fund Act) paid various allowances such as travel allowances, canteen allowances, special allowances, conveyance allowances, management allowances, medical allowances, night shift incentives etc.
  • Employer had not considered these allowances as a part of basic wages for computation of deduction towards Provident Fund.
  • The appeal before the Supreme Court of India raised a common question of law i.e. whether such special allowances paid by employer to be included in the definition of wages under section 2(b) read with section 6 of the provident Fund Act for computation of deduction towards Provident Fund.

Contention by Appellant

  • The provident fund act is a social beneficial welfare legislature meant for protection of the weaker sections of the society. Since special allowance is nothing but camouflaged dearness allowance to reduce the contribution towards EPF, it is liable to be included under basic wages for the calculation of provident fund.

Hon’ble Supreme Court Held that:

  • Supreme Court rightly concluded the word “basic salary” as a wage or salary based on the cost of living and used as a standard for calculating rates of pay. A rate of pay for a standard work period excludes bonus, overtime etc.
  • The allowances in question can be excluded only if it is variable or linked to any incentive for production resulting in greater output by an employee; Otherwise allowances paid universally, necessarily and ordinarily to all across the board, such emoluments are to be considered for the purpose of calculating contribution towards EPF.

Conclusion: Special allowance or any other allowance, by whatever name called, paid by an establishment under normal circumstances shall be taken into consideration for the purpose of computation of contribution towards EPF unless it is linked to individual factors specified above.