SC Decision on Definition of ‘Basic Wages’ under the EPF Act

The Supreme Court of India (‘SC’) heard multiple appeals[1] arising from various High Courts raising a common question of law i.e., whether special allowances paid by an establishment to its employees would fall within the expression ‘basic wages’ for computation of contribution towards the employees provident fund.

In its judgment dated February 28, 2019, the SC reiterated the position that had been earlier laid out in relation to the question of what would constitute ‘basic wages’ for the purposes of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (‘EPF Act’). The SC applied the tests laid down in, inter alia, Bridge and Roof Co. (India) Limited v. Union of India[2] and Manipal Academy of Higher Education v. Provident Fund Commissioner[3], and reaffirmed the position that had been set out in these judgements, viz. where an allowance is universally, necessarily and ordinarily paid to all across the board, such allowances would be ‘basic wages’ for the purpose of the EPF Act. This is not a new position, but the SC has simply reinforced the position that had already been laid out clearly. However, it appears to have created a ripple amongst employers who continued to exclude all allowances, even those that are paid universally to all employees, for the purposes of computation of basic wages under the EPF Act.

[1] (1) Regional Provident Fund Commissioner v. Vivekananda Vidyamandir (Civil Appeal No. 6221 of 2011), (2) Surya Roshni Ltd. v. Employees Provident Fund (Civil Appeal Nos. 3965-66 of 2013), (3) U-Flex Ltd. v. Employees Provident Fund (Civil Appeal Nos. 3969-70 of 2013), (4) Montage Enterprises Pvt. Ltd. v. Employees Provident Fund (Civil Appeal Nos. 3967-68 of 2013), and (5) Management of Saint-Gobain Glass India Ltd. v. The Regional Provident Fund Commissioner, Employees’ Provident Fund Organisation (Transfer Case (C) No.19 of 2019, arising out of T.P. (C) No. 1273 of 2013).
[2] Bridge and Roof Co. (India) Limited v. Union of India, (1963) 3 SCR 978.
[3] Manipal Academy of Higher Education v. Provident Fund Commissioner, (2008) 5 SCC 428.

Published In:Inter Alia - Quarterly Edition - March 2019 [ English Chinese japanese ]
Date: March 31, 2019