Special allowances not part of basic wages: SC

The Supreme Court of India recently clarified that the special allowances paid by an employer to its employees would not fall within the expression ‘basic wages’ for computation of deduction towards the provident fund if the payment have a direct access and linkage to the payment of such special allowance as not being common to all.

“The test adopted to determine if any payment was to be excluded from basic wage is that the payment under the scheme must have a direct access and linkage to the payment of such special allowance as not being common to all. The crucial test is one of universality”, the Court said.

The Court said that in order that the amount goes beyond the basic wages, it has to be shown that the workman concerned had become eligible to get this extra amount beyond the normal work which he was otherwise required to put in.

In the case at hand, the Court found that no material has been placed by the establishments to demonstrate that the allowances in question being paid to its employees were either variable or were linked to any incentive for production resulting in greater output by an employee and that the allowances in question were not paid across the board to all employees in a particular category or were being paid especially to those who avail the opportunity.

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