New Ruling on PF Deductions from Annual Leave Encashment

As per a new ruling of the Madras High Court PF contributions must be deducted from the payments made towards annual leave encashment. Justice K. Chandru considered several writ petitions filed by the factories before taking the decision.

In a new ruling by the Madurai Bench of the Madras High Court, contributions made toward provident funds (PF) need not be deducted from payments made towards the annual encashment of leaves. Justice K. Chandru looked into numerous writ petitions filed by various factories and stated that any payments made towards leave encashment cannot be considered as part of the basic wage and hence cannot be deducted for making PF contributions.

Employees don’t usually encash leaves they have earned and exhaust them. They rather save it up for a rainy day and encash it either at the time of resignation or retirement or use it as a contingency during times of distress or in the event of their demise. Hence it is not in the benefit of the employees if the payment towards annual encashment of leave goes to the contribution towards the PF.

Even though provisions for encashment of annual leaves have been made by employers, the leaves are seldom encashed and even when done are usually due to contingency cases. In most cases, an employee ends up utilizing all the leaves he/she is entitled to and hence will not even have any leaves left to encash. Hence the judge ruled against making deductions from leave encashment stating that contributions towards PF cannot be based on uncertainties and contingencies.

Also the EPF and Miscellaneous Provisions act of 1952 clearly states basic wage as any and all emoluments earned by an employee while on duty or on leave or on holidays with wages. Holidays with wages and leaves mentioned here refer to weekends and leaves which are on account of either festivals or other national holidays.

The ruling of the court stands in contrast with the rulings made by the Bombay and Karnataka High Courts. Justice Chandru disagreed with the rulings of those courts and backed the EPF Appellate tribunal that was held in New Delhi in 2000 which stated that PF deductions from leave encashment would open the doors to a lot of confusion.

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