PF Judgment: 5 Important Lessons

The keenly awaited SC judgment should lay to rest the prevailing confusion and ambiguity in the industry while interpreting basic wages…

- Vikram Shroff

In the recent provident fund (PF) judgment, the Hon. Supreme Court (SC) upheld the test of ’universality’. However, that did not seem to create any new jurisprudence - it basically and correctly reiterated the position taken in some of the previous case laws on this issue, including as far back as 1963.

Hopefully, the PF judgment, which was keenly awaited, should lay to rest the prevailing confusion and ambiguity in the industry while interpreting basic wages. It should now be abundantly clear as to salary components on which employers need to contribute PF. Unfortunately, there were higher expectations, given the potential impact an adverse decision would have had on all industry sectors covering a majority of India’s working population.

Analyzing the PF judgment has in a way helped all of us learn several important lessons, some of which are indicated below:

a. Lesson # 1: The EPF Act is a beneficial social welfare legislation.

While it may seem obvious, the very fact that the SC makes a mention of the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (EPF Act) being a beneficial social welfare legislation and that it must be interpreted as such, serves as a reminder for us. This reference is often and unfortunately overlooked while interpreting some of the labor laws, as a result of which, employers end up taking decisions that may be disadvantageous to employees, especially in relation to matters concerning their salary, benefits and social security.

It is expected that more judgments will follow where the overall object of providing legitimate statutory benefits to the employees will be applied by various courts.

b. Lesson # 2: Basic wages = all cash emoluments except the exclusions.