Whether Provident fund can be deducted on Overtime Allowances?
In PF Laws there are recurrent changes which involve more biting than a reasonable person can eschew. The practical difficulties of executing PF law can only be perceived and felt at the point of implementation.
There are some issues in minds of young HR guys whether overtime would form part of basic wages under the EPF laws. Basic wages are ordinarily susceptible to PF deduction. As per Section 6 of EPF Act and related law, PF is deducted on basic pay; DA; Retaining allowance; and cash value of food concession. Overtime allowances do not come under preview of above mentioned terms and Section 2 (b) (ii) of PF Act specifically stated that overtime is excluded from the definition of Basic wage.
The Supreme Court in Bridge and Roof Company (India) Ltd. v. Union of India, 1962 and Jay Engineering Works Ltd. v. Union of India, 1963 “very aptly unfolded the inter woven components of basic wages vis-à-vis their susceptibility to the Provident Fund Contribution. The theory that has been propounded is very obvious and simple and is good for universal application. It has been ruled that whatever is payable to all concerns and earned by all permanent employees, is included for the purpose of contribution under section 6 but whatever is not payable by all concerns or may not be earned by all employees of the concern is excluded for the purpose of contribution, irrespective of anything.” By way of example it was held that overtime allowance, though it is generally in force in all concerns is not earned by all employees of a concern. It is also earned in accordance with the terms of the contract of employment but because it may not be earned by all employees.
This is an Acid test which has been laid down by the Apex Court, and if we were to apply it to the overtime payment, then some discrepancies would surface. So PF cannot be deducted on overtime allowances.