Concept of Wages: Employees Provident Funds and Miscellaneous Provisions Act, 1952

Topics Covered in this article


Employees Provident Funds and Miscellaneous Provisions Act, 1952 is a labor welfare legislation enacted by the Parliament on November 1st, 1952. It covers the Employee Provident Funds Scheme and is managed under the aegis of Employees’ Provident Fund Organisation (EPFO). It provides social security benefits to the employees which include contributory provident fund, pensionary benefits to the employees or their family members, and insurance cover to the members of provident funds. This Act applies to all the establishments employing 20 or more persons (5 or more in case of Cinema Theatres) from the very date of set up subject to fulfillment of other conditions. The establishments having less than 20 employees or not fulfilling the prescribed limit can also voluntarily contribute towards Employee Provident Fund by registering them with the Regional Provident Fund Office. The article talks about basic wages.

The Employee Provident Fund scheme provides that, an employee has to pay certain amount towards the scheme and the same amount will also be contributed by the employer. When the employee retires, he gets the lump sum amount collected under this scheme. This amount includes his contribution, employer contribution and interest on both. The interest in Employee Provident Fund is calculated on the basis of monthly running income.

Concept of Wages

Section 2 clause (b) of the Act defines basic wages as-

“basic wagesmean all emoluments which are earned by an employee while on duty or on leave or on holidays with wages in either case in accordance with the terms of the contract of employment and which are paid or payable in cash to him, but does not include-

  1. the cash value of any food concession;
  2. any dearness allowance …., house-rent allowance, overtime allowance, bonus, commission or any other similar allowance payable to the employee in respect of his employment or of work done in such employment;
  3. any presents made by the employer.”
Also Read  Criminal Courts in India and their Functioning: The Procedural Code

The Act defines basic wages as the amount which is earned by an employee in normal course of business in return of the work done by him. It excludes dearness allowance, food allowance, bonus, overtime allowance, etc from the ambit of wages.

The rules provide that employees having pay of more than Rs. 15,000 per month at the time of joining are not eligible. But the employees earning less than Rs. 15,000 per month have to mandatorily become the members of Employee Provident Fund. However, an employee earning more than Rs. 15,000 can become a member, if he and his employer agree, with the permission of the Assistant Provident Fund Commissioner.

The contribution under this scheme is to be made out of basic wages of the employee and such must be 12% of basic wages plus dearness allowance plus retaining allowance. When the employees in the establishment are less than 20 or they do not meet certain other requirement as per the rules, than the contribution rate of both employer and employee is limited to 10%.  The employee can voluntarily make contribution beyond the rate of 12% but the employer is not obliged to match such voluntary contribution.

Case Laws

In the case of Whirlpool of India Limited v. Regional Provident Fund Commissioner[1], the canteen allowance was held as a part of employee’s basic wages by a single bench of the High Court of Delhi. The court observed that the words any other similar allowance in definition was to be read in conjunction with the word ‘commission’. Hence, canteen allowances would not fall under the scope of exemptions provided under Section 2(b) of the Act.

In furtherance of the opinion of Delhi High Court, a division bench of the High Court of Madhya Pradesh in Montage Enterprises Private Limited v. Employees’ Provident Fund[2] held that certain allowances such as conveyance allowance, transportation allowance, and special allowances ought to be treated as a segment of basic wages under the provisions of the Act. In like manner, provident fund contributions ought to be remitted on such allowances.

Also Read  Traditional Banking System V/s Payments Banking System

In the case of Surya Roshni Limited v. Employees Provident Fund[3], the High Court of Madhya Pradesh was of the opinion that conveyance allowance, attendance incentives, lunch allowances and other similar allowances would all form part of the ‘basic wage’ component, provided that such allowances are paid ordinarily, uniformly, and necessarily to employees. The aggrieved filed a Special Leave Petition before Supreme Court against the judgment of High Court which is pending before the court.


The term basic wages is defined under the Employees Provident Funds and Miscellaneous Provisions Act, 1952 which also excludes certain matter from its ambit. The understanding of the concept of wages is important because through that only the contribution of the employee and employer towards Provident Fund can be calculated. The court has on various occasions interpreted the meaning of the term basic wages but there is still ambiguity in the term.

Also read The Persisting Struggle of Bonded Labourers

[1] Whirlpool of India Limited v. Regional Provident Fund Commissioner, Writ Petition (Civil) No 7729 of 1999.

[2] Montage Enterprises Private Limited v. Employees’ Provident Fund, 2011 LLR 867.

[3]Surya Roshni Limited v. Employees Provident Fund,  2011 LLR 568.

Leave a comment