Govt rejects proposal to club allowances with basic salary

The labour ministry has asked retirement fund body EPFO not to go ahead with a proposal to club allowances with basic pay for provident fund deductions.

“EPFO has got a letter from the Labour Ministry asking it not to go ahead with clubbing of allowances with basic pay. The Employees’ Provident Fund Organisation will soon issue a notification,” a source said.

According to experts, the move would have increased the savings of organised sector workers under schemes run by the EPFO. It would also have reduced the take-home pay of the subscribers and increased the financial burden on employers.

The EPFO had issued a circular on November 30, 2012, redefining the meaning of “basic wages” for the purpose of PF deductions and said, “All such allowances which are ordinarily, necessarily and uniformly paid to the employees are to be treated as the  basic wages.”

The EPFO also proposed to limit enquiries into provident fund deposits made by companies to a period of seven years. However, the notification was put in abeyance and the EPFO set up a committee to look into the matter and recommend further action to the labour ministry.