Is PF to be deducted on the notice pay amount

Ask the Community
1

Hi Team, Please advise whether PF to be deducted on the notice pay amount.

2 Likes
4

Hi Malathy,

In my opinion -

1. If Notice Pay is Recovered from the Employee

  • Scenario: The employee resigns without serving the notice period, and the company recovers the notice pay from the employee’s final settlement.
  • PF Deduction: No PF is deducted on this amount because:
    • It is not paid as salary or wages.
    • It’s a recovery, not a payment.
    • PF is deducted only on amounts paid to the employee as part of “wages” under Section 2(b) of the EPF Act.

2. If Notice Pay is Paid to the Employee

  • Scenario: The employer terminates the employee and pays notice pay in lieu of actual notice period.
  • PF Deduction: Yes, PF is to be deducted, because:
    • The amount is paid to the employee in lieu of salary.
    • It falls under the broad definition of “wages,” as it compensates for service.

As per Employees’ Provident Funds & Miscellaneous Provisions Act, 1952

  • “Basic wages” under Section 2(b) includes all emoluments earned by an employee while on duty or on leave with wages in accordance with the terms of employment.
  • Notice pay, if paid to the employee, is generally considered a wage substitute.

Regards,
Bhuvana Anand

4 Likes