Employers who split workers salaries into a number of heads to bring down provident fund contributions have been warned of legal action by the Employees Provident Fund Organisation, or EPFO. We have told our field offices that they should examine contracts and pay structures to decide whether the pay was being split into several heads as a subterfuge to avoid PF contribution, a government official told .
The EPFO has asked all its field offices to ensure that the basic pay on the basis of which PF contribution is calculated is at least equal to the minimum wages prescribed by the government. An organised sector worker has to contribute 12% of his basic salary towards provident fund. The employer is required to bring in a matching contribution. The employer is responsible for deducting and depositing the entire contribution. A lower basic salary will bring down the employers contribution.
A 2008 EPFO circular had said that PF contributions on at least minimum wages have to be remitted by employers, but some field offices appeared to be confused about whether basic wages can be lower than minimum wages or whether organisations can be allowed to split up wages into various allowances, an EPFO circular issued recently said.
The basic wage can in no case be lesser than the minimum wage as the same is not only contrary to law of land but is also beyond logic and rationale that an establishment that cannot even pay minimum wages to its employees, would be willing to pay allowances, the EPFO said. If such instances exist, there is certainly a malafide motive of knowingly making false statements or representation which may be punishable under both the EPF & MP Act and the Indian Penal Code, the EPFO has warned.
Employment contracts where minimum wages is split to reduce PF contribution will violate the minimum wages act and would, therefore, be illegal, the official explained. To ensure that the order does not lead to undue harassment of employers, the EPFO has asked assessing officers to examine full facts about the wage structure and minimum wages prescribed by the appropriate government for the relevant class and provide reasonable opportunity to the organisation before deciding the level of subterfuge