Components that form part of Wages when deciding contribution under Provident Fund Act

The method of determining components of wages in order to determine Provident Fund Contribution under the Provident Fund Act in India has been examined as under –

The Hon’ble Supreme Court of India, in Air Freight Ltd. v. State of Karnataka & Ors., C.A. No. 4259 of 1999 as decided on 04.08.1999, laid down that in cases where employer is paying wages to the workers under various heads, if the total sum is higher than the minimum rates of wages fixed under the Minimum Wages Act, 1948 including the Dearness Allowance/Special Allowance (variable component linked to rise/fall in cost of living index), then the employer is not required to pay Dearness Allowance/Special Allowance separately. This judgement allowed employers to split worker’s salaries in a manner that was convenient to them, taking into account various statutory obligations vis-à-vis monetary contribution to be paid therein.

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