Worldwide, employers have been adopting creative and complex systems of offering benefits and services to employees to attract and retain talent. Flippo1 in his book summarized the sources of the rapid growth of such programmes due to:
Many employees, especially those earning wages below the stipulated ceiling of ` 15,000 per month, would want to increase their take home salary as much as possible. Corporations would prefer to increase reimbursement and allowances without leading to proportionate increase in employer’s contributions towards Employee Provident Fund (EPF) under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act), and Employee State Insurance (ESI) under the Employee State Insurance Act, 1948 (ESI Act). Many Corporations have adopted the a limit on Basic + DA at around 40% of the total cost to company (CTC), while House Rent Allowance (HRA)constitutes another 40% and all other Allowances total to the balance of 20%. However, Income Tax departments have been noted to demand that the Basic + DA be increased to about 60% to 75% of total remuneration in order to increase EPF and ESI contributions.
In India, computation of statutory deductions continues to be a vexing issue between the employer and the Government. The changing natures of employee remuneration and different interpretations by various courts have led to much litigation across the country. Of course, it does not help that the ESI Act and the EPF Act have different interpretations for what constitutes basic wages.
One such compensation relates to food allowances. Offering food to employees during working hours is the most basic of all benefits. An Employer may choose one of several methods to provide this benefit.
For example, an employer may create their own facilities and directly employ people to cook and serve the food in their premises. The food may be offered free of cost or at a subsidized rate to employees. Or, the employer may outsource the cooking to a contractor who will in-turn employ workers to cook the food inside the employer’s premises. Alternatively, the caterer may prepare the food in his own premises (presumably outside the employer’s facility) and serve the food directly to the employees at their workplace.
As per the definition of basic wages under EPF Act, food value of concession is excluded. Under Section 2 (b) “basic wages” means 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:
Under the ESI Act, if the food allowance is paid in cash at a fixed rate, irrespective of whether the employee is present or absent from work or on authorized leave etc. then such food allowances may be treated as wages and ESI contributions are payable. On the other hand, if the allowance is paid in cash, but leave or absence etc. is deducted, then the allowance may not be treated as wages and therefore does not attract ESI.
If the employee is served gets food, including meals, tea, snacks etc. at a subsidized or completely free of cost, then these are not to be considered as wages and no ESI is applicable.
Food allowance is excluded from the concept of basic wages in the government’s circular No.5/63/64P.F.II.dt.16/05/1964 and hence no PF is applicable.
The applicability of PF and ESI for workers involved in the preparation of the food in each situation also differs. Their employer will cover workers directly employed in the canteen under PF and ESI, if applicable. If the catering is subcontracted to a contractor, then the contractor will have to cover his workers under PF and ESI.The employer, as the deemed employer,will have to ensure that all the contractor’s workers are covered under PF and ESI. His contract will attract additional service tax. If a Caterer prepares the food outside the employer’s premises, then it becomes the caterer’s responsibility to cover his workers under PF and ESI, if applicable. If the contractor or caterer is exclusively servicing only one customer, then the PF and ESI applicable to the customer will also apply to the caterer.
Another allowance that has come under severe scrutiny is probably Special or Personnel Allowance for skill, efficiency or past performance. Special / Personnel Allowance are deemed as wages and ESI contributions are payable. However, under the PF Act, “Personnel Allowance” pay over and above basic wages & DA are excluded from concept of basic wages in CPFC’s Circular No.E.104(2/b)A-1/53, dt.18/08/1955. Hence contributions are not payable for Personnel Allowance under EPF. Similarly, “Special Allowance” is excluded from concept of basic wages in Ministry’s Circular No.5/63/64P.F.II.dt.16/05/1964, hence contributions are not payable under PF.
Washing Allowance is often paid for workers and staff whose clothes tend to get dirty due to the nature of their work. Under ESI Act, washing allowance is not to be deemed as wages and no contribution is payable under ESI. This allowance is excluded from the concept of basic wages in the Ministry’s No.5/63/64P.F.II.dt.16/05/1964 and hence no PF contribution is payable.
Fuel or Conveyance Allowance is excluded under both PF as per CPFC’s Circular No. SS -107(2)/14/ 58/3051 dt.13/02/1958.and under ESI. The limit has been raised to ` 1,500/- per month from ` 800/-.
In the final analysis, employers would have to chose the appropriate remuneration structure and policy permitted by law that would balance between employee’s aspirations and employer’s financial commitments.
www.grandmasters.in | 8 Years & Counting
www.rcls.in | 8 Years & Counting
www.itlegalsummit.com | 8 Years & Counting
www.bfls.in | 8 Years & Counting
www.maels.in | 8 Years & Counting
www.plcs.co.in | 8 Years & Counting
Copyright © 2020 Lex Witness - India's 1st Magazine on Legal & Corporate Affairs Rights of Admission Reserved
