PF Contribution on Leave Encashment –clarification

No. Coord/3(4)2002/Clarification Dated:- 5.5.2008

To

All Regional PF Commissioner-1,

In-charge of the Regions.

Sub: PF Contribution on Leave Encashment –clarification

Sir,

The dispute before the Hon’ble Supreme Court of India in Appeal (Civil ) No. 1832/2004(Manipal Academy of Higher Education versus Provident Fund Commissioner) was whether the amount received by encashing the earned leave is a part of “basic wage” under section 2(b) of the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 requiring pro rata employers’ contribution.

Hon’ble Supreme Court of India has delivered the judgment on 12.3.2008 in the case and concluded that the basic wage was never intended to include the amounts received for leave encashments.The appeal has been allowed by the Hon’ble Apex Court but it has also been decided that if any payment has already been made it can be adjusted for future liabilities and there shall not be any refund claim since the fund is running one.

In view of the Hon’ble Supreme Courts’ Judgment dated 12.3.2008 in Appeal (Civil) No. 1832/2004, this is to convey that it is decided (a) to discontinue PF deduction on leave encashment with immediate effect and (b) where PF contribution of the employers’ share has been received in the offices of EPFO, the same shall be adjusted against future liabilities.

Yours faithfully

(K.C.J.P. Narayanan)

Regional P.F. Commissioner –I (Coord)

For any query:- deepakmiglani@hotmail.com