Article (October-2019)

Articles

Splitting of Wages for PF - Supreme Court Judgment vs. Code of Wages, 2019

Ram Niwas Bairwa

Designation : -   Regional PF Commissioner (II)- Retired

Organization : -  Jaipur

01-Oct-2019

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The Central Government notified the Code of Wages, 2019 in place of 4 related old Acts, namely; The payment of Wages Act, 1936, The Minimum Wages Act, 1948, The Payment of Bonus Act, 1965 and the Equal Remuneration Act, 1976. The Code of Wages yet to be given effect by one or more notifications for a date or for different dates. Without the date of effect, it may be a premature discussion on it, but, looking to the recent Supreme Court judgment on Splitting of wages for PF, it becomes necessary to discuss the new Code as many employers may be taking steps to restructure wage pattern for their employees.

The Supreme Court Judgment dated 28.02.2019 in the a Civil Appeal case of Regional Provident Fund Commissioner, West Bengal vs. Vivekanand Vidya Mandir and others - [2019 LLR 339] linking 4 other appeals by companies against the orders of the High Courts, has attracted the attention of the employers covered under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952.

This judgment, in fact, once again brought on surface the definition of wages as given in Section 2(b) of the EPF Act.

The Basic wages was initially defined in the Act in 1952, when the structure of wages was such which entailed allowances calculated and given on the basis of the basic wages. Subsequently, the definition of wages was amended in 1988 by inserting a phrase 'on leave or on holidays with wages in either case' rest remained the same and the wage structure remained the same. In the said definition of wages, of course, bonus is in excluded in the Basic Wages, though, the Bonus Act was not brought on the book of Statute, however, it was being paid in different name and nomenclature. Till then, the employment sectors and conditions remained same. Hence, no remarkable dispute on basic wages came up except few, which were decided by the Supreme Court in the case of Bridge and Roof Co. India Ltd. vs. UOI [AIR 1963 SC 1474; 1963 (1) SCR 330; 1962 (1) LLJ 490] and another was Jai Engineering Works Ltd. vs. UOI [AIR1963 SC 1480; 1963 (2) LLJ 72] and were dealing with the payment element of Bonus paid in different kinds. Again, in the case of Daily Pratap vs. Regional PF Commissioner, Punjab Haryana and Chandigarh [1999 LLR -1 (SC)] the Supreme Court also dealt with the payment of Production Bonus.

In the new Code on wages, the definition of wages has been given in section 2 (y) which reads as under -

"2(y) "wages" means all remuneration whether by way of salaries, allowances or otherwise, expressed in terms of money or capable of being so expressed which would, if the terms of employment, express or implied, were fulfilled, be payable to a person employed in respect of his employment or of work done in such employment, and includes,-

(i) basic pay;

(ii) dearness allowance; and

(iii) retaining allowance, if any,

but does not include-

(a) any bonus payable under any law for the time being in force, which does not form part of the remuneration payable under the terms of employment;

(b) the value of any house-accommodation, or of the supply of light, water, medical attendance or other amenity or of any service excluded from the computation of wages by a general or special order of the appropriate Government;

(c) any contribution paid by the employer to any pension or provident fund, and the interest which may have accrued thereon;

(d) any conveyance allowance or the value of any travelling concession;

(e) any sum paid to the employed person to defray special expenses entailed on him by the nature of his employment;

(f) house rent allowance;

(g) remuneration payable under any award or settlement between the parties or order of a court or Tribunal;

(h) any overtime allowance;

(i) any commission payable to the employee;

(j) any gratuity payable on the termination of employment;

(k) any retrenchment compensation or other retirement benefit payable to the employee or any ex gratia payment made to him on the termination of employment:

Provided that, for calculating the wages under this clause, if payments made by the employer to the employee under clauses (a) to (i) exceeds one-half, or such other per cent as may be notified by the Central Government, of the all remuneration calculated under this clause, the amount which exceeds such one-half, or the per cent, so notified, shall be deemed as remuneration and shall be accordingly added in wages under this clause:

Provided further that for the purpose of equal wages to all genders and for the purpose of payment of wages, the emoluments specified in clauses (d), (f), (g) and (h) shall be taken for computation of wage.

Explanation.- Where an employee is given in lieu of the whole or part of the wages payable to him, any remuneration in kind by his employer, the value of such remuneration in kind which does not exceed fifteen per cent. Of the total wages payable to him, shall be deemed to form part of the wages of such employee;"

The new definition clearly underlines the emoluments which will form part of wages and which will not form part of wages. Thus, here three components which clearly form part of wages are, (i) basic pay; (ii) dearness allowance; and (iii) retaining allowance, if any. Some components of wages have also been listed which will not form part of wages. But those components will not end the disputes in future, specially where the C.T.C. is paid.  In the First proviso, it has been clarified that wages will not be less than 50% of the total emoluments being paid to an employee and rest less than 50 % can be construed as non-wages. Such components which do not form part of wages, are-

(a) any bonus payable under any law for the time being in force, which does not form part of the remuneration payable under the terms of employment;

It means, any bonus which is paid under any law (now this Code) which does not form part of remuneration payable under the terms of employment. If under a CTC Scheme, bonus is paid which is not covered by this Code will be part of wages.

(e) Any sum paid to the employed person to defray special expenses entailed on him by the nature of his employment;

(h) Any overtime allowance;

These items are such which may invite many litigations, as for PF is concerned until the remuneration even above 50% still becomes below the ceiling pay fixed under PF laws. The special expenses, the over-time allowance and the commission have not been defined in the new Code of Wages. As per the Supreme Court Orders, any special expenses is to form part of wages. Similarly, if the overtime allowance  is not as per this new Code of Wages or the repealed Payment of Bonus Act, 1965, this component is altogether will be under the PF Authorities scrutiny.

(i) Any commission payable to the employee;

The Commission has also not been defined in the new Code of Wages by which it can be put out of the reach of the PF authorities, hence this component too will be a matter of scrutiny by the PF authorities.

(g) Remuneration payable under any award or settlement between the parties or order of a court or Tribunal;

This is the most important part of the newly defined wages in the new Code of Wages. All the Laws for regulating the services and the working conditions of employees treat all such remunerations payable on account of an award or settlement between parties or order of a court or a tribunal is always treated as wages, because such award or settlement of order of court used to be resolving employment dispute by which services of an employee is regularized and all service benefits are restored. In that condition it is not forgotten that PF also becomes payable while the service-benefits are restored. Hence it is hard to digest this exclusion from wages as far PF is concerned.

Another major anomaly that has been created by the new Code of Wages while declaring the equal remuneration for the female employees. Second proviso the this definition of Wages says -

Provided further that for the purpose of equal wages to all genders and for the purpose of payment of wages, the emoluments specified in clauses (d), (f), (g) and (h) shall be taken for computation of wage.

The components mentioned in above clauses (d), (f), (g) and (h) have been excluded from wages in respect of a male employee and included in the wages payable to a female employee? How this will work as equal remuneration and prevent the authorities to take advantage of this discriminatory provision? By this arrangement, a male employee will get more treating these items above the ceiling of 50% whereas the 50% ceiling of total remuneration include in case of female employee. As such, carry-home of a female employee will be less than a male employee.

What the factors will be taken into account while fixing minimum wages; those have been prescribed in section 7, which reads.

"7. (1) Any minimum rate of wages fixed or revised by the appropriate Government under section 8 may consist of-

(a) a basic rate of wages and an allowance at a rate to be adjusted, at such intervals and in such manner as the appropriate Government may direct, to accord as nearly as practicable with the variation in the cost of living index number applicable to such workers (hereinafter referred to as "cost of living allowance"); or

(b) a basic rate of wages with or without the cost of living allowance, and the cash value of the concessions in respect of supplies of essential commodities at concession rates, where so authorised; or

(c) an all-inclusive rate allowing for the basic rate, the cost of living allowance and the cash value of the concessions, if any.

(2) The cost of living allowance and the cash value of the concessions in respect of supplies of essential commodities at concession rate shall be computed by such authority, as the appropriate Government may by notification, appoint, at such intervals and in accordance with such directions as may be specified or given by the appropriate Government from time to time."

By this new Code of Wages, the Government has tried to resolve the dispute with regard to Wages, as far it relates to the Employees' Provident Funds and Miscellaneous Provisions Act, 1952.

In an another step, the Government has proposed a Bill with a view to bring-in various amendments in the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. The Bill has been notified on 23.08.2019 inviting comments and proposals to make the bill final for laying it on the floor of the parliament.

Besides other amendments, the definition of "basic wages" under section 2 (b) has been deleted and a new section "2 (n)" has been proposed defining the "wages" only. The new definition of Wages is copy of the provision as mentioned in the new Code of Wages, 2019 under section 2 (y). The only difference is that in the proposed definition in the EPF & MP Act, 1952, the second proviso as provided in the Code of Wages has not been taken, in addition, a second explanation as "Explanation II" has been added defining the "Retaining Allowance" which now mean "a period for which the establishment is not working, and to retaining its employees, allowance is paid. Thus, it has been tried to bring in the definition of "Wages" instead of "basic wages" on the statue of the Provident Fund.