Special allowance which is paid to all employees should be treated as part of remuneration and will form part of salary. At the same time, special allowance which is paid to a particular category of employees considering the special skill which is applied to to the work shall be treated as some thing 'special' and that which not form part of salary for the purpose of PF deduction.
The Madras High Court in R Ramanathan Chettiar Jewellers, Madurai vs. Regional PF Commissioner, Madurai – 1988 (ii) LLJ 045, has held that where the special allowance is not paid under contract of employment, settlement or award but paid purely out of management’s own will and pleasure then such special allowance would not be taken into account for the purpose of calculating contribution payable under the Act. This ruling lays stress that a payment which is not of a regular nature and is paid purely in the discretion of the management, would not be available for PF contribution.
In Associated Cement Company Ltd. and Ors. v. R.M. Gandhi, Regional Provident Fund Commissioner, Gujarat(1995-III-LLJ(Suppl.)-368), it has been held that ad hoc payments made to ‘eligible employees and not to all employees’ under agreement does not form part of basic wages for PF contribution.
The Apex Court while giving verdict in Bridges and Roofs (India) Ltd Vs. Union of India [1963 (2) LLJ 490], has said that "it seems that the basis of inclusion in Section 6 (of Employees provident Fund and Miscellaneous provisions Act, 1952)and exclusion in Clause (ii) is that whatever is payable in all concerns and is earned by all permanent employees is included for the purpose of contribution under Section 6 but whatever is not payable by all concerns or may not be earned by all employees of concern is excluded for the purposes of contribution."
Therefore, special allowance (which is at par with DA in many states) should be treated as part of salary for the purpose of PF contribution.
11th January 2013 From India , Kannur