Help Line
Business Manager|December 2017

Solutions provided here are in context to narrated facts & not in general.

Anil Kaushik
Help Line
Q. Are we liable to deduct PF contributions on the amount paid to employees under incentive or production bonus or incentive bonus?

Ans. This issue has been discussed by Supreme Court in various cases. The latest was in the case of Daily Pratap vs. RPFC 1999 LLR 1 (SC). The test adopted by the SC in this case is that in order to be excluded from 'basic wages' the payment under such a scheme must have a direct nexus and linkage with the amount of extra output. On an examination of the scheme in that case, it was found that less than normal number of workmen doing normal work of a shift, production bonus was given according to the deficiency in the numerical strength of workmen and extra output given by any workman in any shift, output of different types of workmen being measured according to the prescribed norms but production bonus not directly linked with the amount of the extra output furnished by the workman concerned but paid at a uniform rate of his normal wages was held to be not bonus at all and the scheme was not a genuine one. It was not the same as incentive bonus scheme and thus the PF was payable on such amount.

It, therefore, becomes clear that in order to become a genuine production bonus scheme so as to get covered by exception (ii) to the definition of "basic wages" as found under Section 2(b) of the EPF Act, it must be clearly evident that the scheme to offer production bonus to the workmen concerned who put in extra output wherein either collectively bonus be fixed to all of them on the basis of total extra output on a sliding scale or may be paid individually to a given number of workmen who by their own efforts earn such bonus.

This story is from the December 2017 edition of Business Manager.

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This story is from the December 2017 edition of Business Manager.

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