ANALYSIS OF EPF LAWS IN INDIA

~ Ashish Kumar a 4th year Student of BA LLB (Hons) at NMIMS School of Law, Bangalore, Co-Author- Urja Joshi a 4th year Student of BBA LLB (Hons) at NMIMS School of Law, Bangalore.

 The article is an analysis of Employee Provident Fund Laws and its applicability to the employees. The authors have also discussed the compliances and due diligence which needs to be followed by the employers under the Employee Provident Fund Scheme.


INTRODUCTION

The Employees Provident Fund (“EPF”) was implemented with the objective of welfare of the working class in the private and public sectors in mind. The EPF is a savings account that accumulates during an employee’s employment. Its purpose is to manage the provident funds of government and private sector employees in order to assist them financially upon retirement. The Employees’ Provident Funds and Miscellaneous Provisions Act of 1952 govern the, EPF policy. In order to comply with EPF, there are multiple compliances and due diligence needs to be followed by the employers per se which will be discussed in the latter part of the paper.

BACKGROUND

Employee Provident Fund

The EPF Act is an important social security law for workers in India. This applies to all companies with 20 or more employees (“Covered Companies”). As per the EPF Act, PF Contribution is available to

  • all the employees receiving salary less than Rs 15000 per month employees who, for purposes of the EPF Act (“eligible employees”).
  • It is mandatory for the Employers to pay a PF contribution equal to 12% of the employee’s monthly “base wage”, affection allowance, “maintenance allowance and the cash value of food concessions” (“contribution wages”) subject to a monthly limit for domestic workers of Rs.1,800.

ANALYSIS AND LEGAL PERSPECTIVE

Whether EPF is mandatory for employees receiving a salary of more than Rs 15000 per month?

The Employee Provident Fund scheme applies to all employers with more than 20 workers to help salaried individuals save for specific needs and retirement. The employer must deduct 12% of the employee’s basic salary and dearness allowance, plus make an equal contribution. All employees earning less than Rs 15,000 per month must do this. The Rs 15,000 threshold is calculated using basic pay and dearness allowances. Employees whose salaries exceed the threshold limit can opt out of the program. Once enrolled, an employee must stay enrolled as long as he works for the current employer. For employees earning more than Rs 15,000 per month, the employer can deduct and contribute 12% of the base amount or the entire basic salary and dearness allowance. Since most employee’s view “in hand cash salary” as the only form of compensation, provident fund deductions/contributions are not considered salary. To maximize “in hand salary,” many employers provide allowances like Canteen allowances which are included. Allowances include transportation, meal, rent, and special allowance. The Scheme excludes both the cash value of food concession and House Rent Allowance (“HRA”) for PF deduction.

In Para2(f)(ii) of the Employee’s Provident Funds Scheme, 1952, prescribes the definition of “excluded employee” as “an employee whose pay at the time he is otherwise entitled to become a member of the Fund, exceeds [fifteen thousand rupees] per month. However, the point of contention is that the employees whose pay is more than Rs 15000 will not be considered as an employee in the Employee Provident Fund Scheme. As per para 26(2)(6) an employer and employee in a joint request to an officer not below the rank of Assistant Provident Commissioner can request to avail the scheme. Sub-para (2) of 26A prescribes that every member employed as an employee other than an excluded employee, in a factory or other establishment to which this Scheme applies, shall contribute to the Fund, and the contribution shall be payable to the Fund in respect of him by the employer. Such contribution shall be in accordance with the rate specified in paragraph 29:

“Provided that subject to the provisions contained in sub-paragraph (6) of paragraph 26 and [in paragraph 27], or sub-paragraph (1) of paragraph 27- A, where the monthly pay of such a member exceeds [fifteen thousand rupees] the contribution payable by him, and in respect of him by the employer, shall be limited to the amounts payable on a monthly pay of [fifteen thousand rupees] including [dearness allowance, retaining allowance (if any) and] cash value of food concession]”

The sub-para clearly excludes an “excluded employee” from the scheme whose salary is more than Rs 15000 and if joint request in reference to sub-para 6 of para 26(2) is executed then only the employee is allowed to avail the scheme but the amount paid by the employer shall be limited to the amounts payable on a monthly pay of Rs 15000.

Further, the Hon’ble Delhi High Court in M/s Stallion Security vs Union of India has held that “the EPF contribution are mandatory only for employees who are at a salary less than Rs 15,000 per month” In my work order, the salary of our employees is more than Rs 15000 and they come into the category of excluded employee”.

However, there are discussion going to increase the salary ceiling to Rs 21,000 and EPF will be mandatory for employees receiving salary less than Rs 21,000.

Whether Contract Labour comes under the ambit of the EPF scheme?

The Employees Provident Funds and Miscellaneous Provisions Act of 1952 (EPF Act definition) of an employee has been the focus of numerous legal disputes before the Courts. When employees of an organization work from home or are paid on a piece rate, this problem frequently arises. The Courts have created a set of standards for assessing the type and extent of the work being done and the relationship that results from it. When analyzing such situations, courts frequently apply the control and supervision principle, the ultimate authority principle, and the integration principle. In Officer in Charge, Sub Regional Provident Fund Office, and others v. M/s Godavari Garments Limited, the Supreme Court of India (Supreme Court) was asked to determine whether the women employed by M/s Godavari Garments Limited (Godavari Garments), who used their own sewing machines and prepared clothes at home, qualified as employees under the EPF Act. In the leadup to the case, the definition of “employee” in Section 2(f) of the EPF Act was found to include women who sew clothing, according to an order issued by the officer in charge of the Sub Regional Provident Fund Office (PF Authority). As a result of an appeal to the Bombay High Court, the Aurangabad bench of the Bombay High Court ruled that Godavari Garments had neither direct nor indirect control over its female employees. It was determined therefore that “On behalf of the female workers, any individual could create garments from fabric. The Respondent Company did not supervise its female employees as a result.” The case was then appealed to India’s highest court.

A divisional bench of the Supreme Court, speaking through Justice Indu Malhotra, remarked that the EPF Act’s definition of an employee was sufficiently inclusive to include anyone who participated in the establishment’s work, whether directly or indirectly.

In Pawan Hans Limited & Ors. vs. Aviation Karmachari Sanghatana, the Supreme Court of India observed that the EPF Act will be applicable to all the employees of the company.

The EPF scheme is only mandatory for the employees with a salary up to Rs 15,000. However, if the employer and employee make a joint request to an officer not below the rank of Assistant Provident Commissioner, they can request to avail the scheme and the same process is followed by the employer to evade from contributing an excess amount to the EPF scheme. 

Generally, contractors are hired by the companies, govt departments and PSUs to complete and execute the projects. The contractors hire employees for these projects. So, the point of discussion was whether the employees hired by the contractors will be considered as employees under the EPF Scheme. In Officer in Charge, Sub Regional Provident Fund Office and Another v M/s Godavari Garments Limited, the Supreme Court of India rightly observed that all workers engaged directly or indirectly employed will be considered as “employee”. Contractual workers frequently do not receive benefits on par with regular employees because of this lack of clarity. The aforementioned Supreme Court decision clarifies how the provident fund benefits are to be implemented and addresses the issue of contractual employees.


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