Understanding Changing Legal Interpretations of Basic Wages & Allowances In E.P.F. Act & Legal Disputes Arising Out Of CTC Structure

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Event Details

Understanding Changing Legal Interpretations of Basic Wages & Allowances In E.P.F. Act & Legal Disputes Arising Out Of CTC Structure - Sep 09, 2017

1. Understanding The Terms “Basic Wages & Allowances” - Legal Interpretations And Court Decisions, Under

a. The  Employees’ Provident Fund And M.P. Act, 1952

b. The Payment Of Gratuity Act, 1972

c. Minimum Wages Act, 1948

2. Fixing Salary Structure Based On CTC And Related Implications, Both Legal As Well As Contractual

For Whom :

The seminar is designed for Managers, Executives and Senior Officials at the Corporate as well as the establishment level in HR/Administration, Accounts and Line Functionaries.

Basic Wages & Allowances” – E.P.F.M.P. Act 1952, Changing Interpretations and Court Decisions

The proliferation of a wide variety of allowances has caused much confusion litigation in the compliance of statutes such as The EPF MP Act, 1952. The problem stands aggravated in the background of large contract labour widely used today. In many cases, the PF Commissioner has challenged the splitting up of ‘emoluments’ alleging that it was contrived to keep the PF deductions low thereby depriving employees of the benefits of a social security enactment. Several employers are facing enquiries under Section 7A of the EPF Act 1952 in view of the RPFC’s contention that notwithstanding the salary structure adopted by an employer, the PF contributions will have to be made up to the specified salary ceiling where the gross wages are more than Rs. 15,000/- per month.


The allowances introduced, with imaginative and innovative titles, in certain cases with no justifiable reason or logic, often as a balancing amount to make up the CTC promised during recruitment are not easily explainable. They have opaque origins and are paid even when the employee is on leave. Such allowances are termed as ‘special allowance’, ‘ad hoc allowance, ‘ additional allowance’, ‘Professional Allowance’ , etc., and are paid to all employees. There have been instances where a part of emoluments are paid as ‘other allowances’.


There is much conceptual confusion in understanding the difference between “basic wages” as defined in Section 2(b) of the EPF Act and “allowances”. When does ‘basic wages’ masquerade as an ‘allowance’? What is the legal difference between “basic salary” and an “allowance”?  The landmark apex Court decision in 1963 of a Bench of six Judges in Bridge and Roof Company, a beacon of legal guidance, holds the field even today and any “allowance” paid that is sought to be excluded from the ambit of “basic wages” would need to be examined on the anvil of the ratio of that case. 


A major departure was, however, seen in a decision of the Gujarat High Court in Gujarat Cypromet Ltd. V/s. Asstt. Provident Fund Commissioner where PF contributions were held to be payable on various components of salary such as medical allowance, conveyance allowance, washing allowance and even House Rent Allowance.  Subsequent decisions that followed from the Madras, Delhi and Madhya Pradesh High Courts have similarly considered several allowances as “basic wages”.  In the result, appeals are now pending before the Honourable Supreme Court on allowances inter alia  “special allowance”, “washing allowance”, and “conveyance allowance”  Employers may note that there is no stay order from the Supreme Court on the EPF authorities.


Every employer would need to understand the correct import and interpretation of the prevalent judgments as retrospective PF claims relating to various allowances may be imposed on employers with interest and damages considering the fact that the EPF Act does not provide for any limitation.


Fixing Salary Structure Based on CTC and Legal Implications Under Payment of Gratuity Act, 1972

  • Claim for gratuity for less than five years continuous service as CTC refers to it 

  • Gratuity calculation – whether claims for inclusion of allowances can arise

  •  CTC and claim for ownership of company car


CTC and its problems:

An employee who leaves say after three years claims gratuity for such period as the CTC promised to him included a component of gratuity. Such claims are common and in some cases have led to adjudication in the employee’s favour. The widespread practice of negotiating on a CTC basis, at the time of appointment, a salary package incorporating all emoluments, allowances, the various indirect costs that the Company incurs, or will incur, on his behalf is also beset with potential problems. If allowances have partaken the character of “basic wages” there is a high risk that a claim for their inclusion in calculating gratuity. Are there any precautions that an employer can take in the fluid legal scenario. Where the CTC includes a component of the cost of a car provided to an employee can he demand at the time of separation/retirement that the vehicle belongs to him? This is an interesting issue that comes up at times.


 While computing the statutory minimum wages applicable to their industry employers group some of the allowances with the ‘basic wages’ hopefully to meet the notified minimum wages. Such practice has often been objected by the Inspectorate under the Act and has resulted in extensive litigation relating to claims filed in Courts and prosecution of employer. What then are the legal rights of the employer in the exercise of his managerial rights and discretion when determining the wage structure? What precautions would he need to take in rationalising the existing wage structure of his employees? Is it necessary to show separately the notified ‘special allowance’ in the pay slips given to the employees? A clear understanding is important as to which allowances can be included for the purposes of computation of minimum wages.

Mr. K. M. Naik, Sr. Advocate - High Court & Sr. Counsel Tata Services Ltd.

Mr. Lancy D’souza, Advocate - High Court & Advisor – Legal, Bombay Chamber


The Leela Mumbai, Sahar, Andheri (E), Mumbai 400 059

Ms. Chetna Surti - Manager
Tel.: 4910 0200, Direct: 4910 0228
Mobile: 9892686418
Mr. Prashant Bais - Joint Director
Tel.: 6120 0200, Direct: 61200210
Mobile: 99677 05312 
Participation Fee :   
Members  Rs. 5000 +18% GST
Non-Members  Rs. 5500 +18% GST


Bank Details for NEFT

Beneficiary Account No.




Bank Name

State Bank of India

Branch Address

Mumbai Main Branch, Mumbai Samachar Marg, Mumbai- 400 001

MICR Code   

40000 2010

Cheque /Demand Draft should be drawn in favor of “BOMBAY CHAMBER OF COMMERCE AND INDUSTRY”.


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