What Counts as PF Wages Under the Code on Social Security
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PF is calculated on wages as defined in section 2(88) of the Code on Social Security: broadly basic pay, dearness allowance and retaining allowance. Not CTC, not gross. But the Code adds a safeguard: if excluded allowances are more than half of total pay, the excess is added back to wages. Structures that keep basic artificially low no longer reduce PF.
Included and excluded
| Usually in wages | Usually excluded (subject to the 50% rule) |
|---|---|
| Basic pay Dearness allowance Retaining allowance | House rent allowance Conveyance and travel allowance Overtime Bonus, commission Employer's PF contribution Gratuity, retrenchment compensation |
Statutory bonus is a separate law. No PF is due on bonus. In Uttar Pradesh and Uttarakhand the bonus law applies to establishments with 10 or more employees. The bonus is calculated on the minimum wage of the employee's skill category (unskilled, semi-skilled, skilled or highly skilled), and the maximum is 20% of that minimum wage.
The 50% rule: example
| Total monthly pay | ₹40,000 |
| Basic + DA | ₹14,000 |
| Excluded allowances | ₹26,000 (65%) |
| Allowed exclusion (50%) | ₹20,000 |
| Wages for PF | ₹14,000 + ₹6,000 = ₹20,000 |
- Total all remuneration
- Add excluded items; compare with 50%
- Add any excess to wages; cap at ₹25,000 where applicable
Take professional advice when restructuring pay; EPFO's FAQ says statutory wages must not be reduced contrary to law.
Sources
- EPFO: Wage ceiling FAQs (Q24 to Q27: wages under section 2(88), not gross or CTC).
- PIB: Code on Social Security, 2020 explainer.