LEAVE ENCASHMENT NOT INCLUDED IN WAGES FOR PROVIDENT FUNDS CALCULATION : SC

SUPREME COURT OF INDIA
Hon'ble Dr . Arijit Pasayat, J., Hon'ble Mr. P. Sathasivam, J.
Appeal (Civil) 1832 of 2004, Decided on 12.3.2008

Manipal Academy of Higher Education
vs.
Provident Fund Commissioner

A. EMPLOYEES' PROVIDENT FUNDS & MISCELLANEOUS PROVISIONS ACT, 1952 - Section 2(b), Basic Wages - Encashment of leave not to attract provident fund contributions - Reliance placed by EPFO on Hindustan Lever Employees Union Vs. Regional Provident Fund Commissioner , 1995 LLR 416 (Bom. HC) including encashment of leave in basic wages was not proper prospective - The employer was including the amount of leave encashment as emolument for the purpose of calculating the provident funds dues for the employer as well as employees' contributions - The term “basic wages” though includes ‘all emoluments' which are earned by an employee while on duty or on leave or on holiday with wages - Would not take leave encashment of - In view of the Supreme Court judgment in Bridges and Roof Company case, the inevitable conclusion is that basic wages are never intended to include encashment of leave. Para 12

B. EMPLOYEES' PROVIDENT FUNDS & MISCELLANEOUS PROVISIONS ACT, 1952 - Interpretation of its provisions - Though beneficial legislation - It becomes irrelevant when two views are possible - Appeal pertaining to exclusion of encashment of leave allowed with direction that any payment already made can be adjusted for future liabilities and there shall not be any refund since refund is running one. Para 14

IMPORTANT POINT

Encashment of leave will not attract the Provident Funds contributions since the definition of ‘basic wages' given under the Act did not intend to include such type of payment besides that the Apex Court in Bridge & Roof Company (India) Limited has also clearly interpreted the term ‘basic wage' hence the reliance as placed by the EPFO on the judgment of Bombay High Court has not been proper.

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