EPF Contribution Payable On 'Basic Wages' Camouflaged As Allowances: SC [Read Judgment]

The bench comprising Justice Arun Mishra and Justice Navin Sinha was considering a batch of appeals in which the issue was whether the special allowances paid by an establishment to its employees would fall within the expression "basic wages" under Section 2(b)(ii) read with Section 6 of the Act for computation of deduction towards Employees' Provident Fund.

Referring to the provisions of the Act, the bench said that the test adopted to determine if any payment was to be excluded from basic wage is that the payment under the scheme must have a direct access and linkage to the payment of such special allowance as not being common to all. The court, referring to Muir Mills Co. Ltd., Kanpur Vs. Its Workmen, also observed that any variable earning which may vary from individual to individual according to their efficiency and diligence will stand excluded from the term "basic wages".

The court said that, in these cases, no material has been placed by the establishments to demonstrate that the allowances in question being paid to its employees were either variable or were linked to any incentive for production resulting in greater output by an employee and that the allowances in question were not paid across the board to all employees in a particular category or were being paid especially to those who avail the opportunity. The bench applying the law to facts of the case, said:

"In order that the amount goes beyond the basic wages, it has to be shown that the workman concerned had become eligible to get this extra amount beyond the normal work which he was otherwise required to put in. There is no data available on record to show what were the norms of work prescribed for those workmen during the relevant period. It is therefore not possible to ascertain whether extra amounts paid to the workmen were in fact paid for the extra work which had exceeded the normal output prescribed for the workmen. The wage structure and the components of salary have been examined on facts, both by the authority and the appellate authority under the Act, who have arrived at a factual conclusion that the allowances in question were essentially a part of the basic wage camouflaged as part of an allowance so as to avoid deduction and contribution accordingly to the provident fund account of the employees."

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