[The
following guest post is contributed by Madhusudan
Bose, who is a lawyer and company secretary by profession, at PRA Law
Offices, New Delhi. Author’s views are personal]
following guest post is contributed by Madhusudan
Bose, who is a lawyer and company secretary by profession, at PRA Law
Offices, New Delhi. Author’s views are personal]
Pursuant to the proposals made by the
Finance Minister in his Budget speech, the Ministry of Labour and Employment
introduced a number of amendments to the Employees’ Provident Funds Scheme (“EPF Scheme”) and the Employees’ Pension
Scheme (“Pension Scheme”) under the Employees’ Provident Funds
and Miscellaneous Provisions Act, 1952 (“EPF
Act”). These were through notifications dated August 22, 2014. The said
amendments have come into effect from September 1, 2014.
Finance Minister in his Budget speech, the Ministry of Labour and Employment
introduced a number of amendments to the Employees’ Provident Funds Scheme (“EPF Scheme”) and the Employees’ Pension
Scheme (“Pension Scheme”) under the Employees’ Provident Funds
and Miscellaneous Provisions Act, 1952 (“EPF
Act”). These were through notifications dated August 22, 2014. The said
amendments have come into effect from September 1, 2014.
Object of the amendments and
implications for employers and employees
implications for employers and employees
The amendments were in effect long
overdue. The Ministry of Labour and
Employment had last revised monthly income limits for coverage under EPF Scheme
in the year 2001. The extant EPF Scheme
mandated employees with monthly pay[1]
of upto Rs. 6,500/- to mandatorily become members of the EPF scheme. This limit has now been revised to Rs. 15,000/-. Considering the growth rate of wages and
salaries in the past 15 years, it is but a matter of time before even the
revised limit of Rs. 15,000/- becomes dated.
overdue. The Ministry of Labour and
Employment had last revised monthly income limits for coverage under EPF Scheme
in the year 2001. The extant EPF Scheme
mandated employees with monthly pay[1]
of upto Rs. 6,500/- to mandatorily become members of the EPF scheme. This limit has now been revised to Rs. 15,000/-. Considering the growth rate of wages and
salaries in the past 15 years, it is but a matter of time before even the
revised limit of Rs. 15,000/- becomes dated.
Furthermore, minimum PF contributions
will now have to be based on the revised cap.
Thus, employees whose PF contributions had been limited to 12% of
monthly pay of Rs. 6,500/- will now face an increase in PF deduction of upto
Rs. 780/- from their salaries. Similarly, employers would have to set apart additional
funds to match the employee contributions in the above cases.
will now have to be based on the revised cap.
Thus, employees whose PF contributions had been limited to 12% of
monthly pay of Rs. 6,500/- will now face an increase in PF deduction of upto
Rs. 780/- from their salaries. Similarly, employers would have to set apart additional
funds to match the employee contributions in the above cases.
An unexpected upshot is the exclusion of
new EPF members from becoming members of the Pension Scheme, if their monthly pay
exceeds Rs. 15,000/-. This rule applies
to international workers also. The
Pension Scheme is not looked upon with favor by high earning employees, as the
diversion to the pension fund is quite meagre (being limited to 8.33% of Rs. 6500/-
earlier), and the benefit, howsoever minor, accrues upon superannuation,
disablement etc only. However, the above
exclusion applies to new members only.
new EPF members from becoming members of the Pension Scheme, if their monthly pay
exceeds Rs. 15,000/-. This rule applies
to international workers also. The
Pension Scheme is not looked upon with favor by high earning employees, as the
diversion to the pension fund is quite meagre (being limited to 8.33% of Rs. 6500/-
earlier), and the benefit, howsoever minor, accrues upon superannuation,
disablement etc only. However, the above
exclusion applies to new members only.
All employees and employers need to acquaint
themselves with the new changes brought about by the aforesaid amendments. For employees, the nitty-gritties are more,
as they have to take into account the difference in treatment, not only for
international workers and Indian employees, but also existing members, and new
persons joining after September 1, 2014.
This is discussed in detail as under.
themselves with the new changes brought about by the aforesaid amendments. For employees, the nitty-gritties are more,
as they have to take into account the difference in treatment, not only for
international workers and Indian employees, but also existing members, and new
persons joining after September 1, 2014.
This is discussed in detail as under.
Summary of important amendments made to
the provident fund and pension schemes under the EPF Act
the provident fund and pension schemes under the EPF Act
1. Eligibility limit for membership to EPF
scheme increased to Rs. 15,000: Earlier, only
employees whose monthly pay was Rs.6,500/- or less were required to become a
member of the EPF Scheme. Now, this limit has been increased to Rs. 15,000/-.
scheme increased to Rs. 15,000: Earlier, only
employees whose monthly pay was Rs.6,500/- or less were required to become a
member of the EPF Scheme. Now, this limit has been increased to Rs. 15,000/-.
It
is pertinent to note that the said limit does not apply to ‘international
workers’. ‘International workers” (“IWs”) of countries with whom India has not executed a social security agreement
(“SSA”) and working for a covered
establishment in India are required to become a member under the EPF scheme
irrespective of amount of their monthly pay.
is pertinent to note that the said limit does not apply to ‘international
workers’. ‘International workers” (“IWs”) of countries with whom India has not executed a social security agreement
(“SSA”) and working for a covered
establishment in India are required to become a member under the EPF scheme
irrespective of amount of their monthly pay.
2. Increase in cap on employees’ / employers’
contribution:
In line with the above amendment, the maximum contribution by an
employee / employer, where monthly pay of the employee exceeds Rs. 15,000/-,
has been capped to the amount payable on monthly pay of Rs. 15,000/- (the
earlier cap was Rs. 6,500/-). Of course,
the employee / employer can choose not to restrict their contributions to the
above limits.
contribution:
In line with the above amendment, the maximum contribution by an
employee / employer, where monthly pay of the employee exceeds Rs. 15,000/-,
has been capped to the amount payable on monthly pay of Rs. 15,000/- (the
earlier cap was Rs. 6,500/-). Of course,
the employee / employer can choose not to restrict their contributions to the
above limits.
As
before, the aforesaid caps do not apply to ‘international workers’ and there is
no cap on monthly pay on which contributions are payable by employer / employee
in respect of IWs from non-SSA countries.
before, the aforesaid caps do not apply to ‘international workers’ and there is
no cap on monthly pay on which contributions are payable by employer / employee
in respect of IWs from non-SSA countries.
3. New employees having monthly pay more than
Rs. 15,000/- excluded from Pension Scheme:
On and from September 1, 2014, the Pension Scheme will apply only to those
persons who become a member of the EPF Scheme and whose pay on such date is
less than or equal to Rs. 15,000/-.
Rs. 15,000/- excluded from Pension Scheme:
On and from September 1, 2014, the Pension Scheme will apply only to those
persons who become a member of the EPF Scheme and whose pay on such date is
less than or equal to Rs. 15,000/-.
Persons
who were members of the Pension Scheme before September 1, 2014 would continue as
such members, and contribute 8.33% of their monthly pay to the Employees’
Pension Fund.
who were members of the Pension Scheme before September 1, 2014 would continue as
such members, and contribute 8.33% of their monthly pay to the Employees’
Pension Fund.
Pertinently, the above
rule is also applicable to IWs from non-SSA countries who are otherwise
required to become members of the EPF Scheme.
In other words, with effect from September 1, 2014, if an IW from a
non-SSA country, becomes a member of the EPF scheme, and his monthly pay is
more than Rs.15,000/-, then, he would not be required to contribute any amount
towards the Pension Scheme (as in case of his Indian counterpart). However, this does not apply to IWs who are
already members of the Pension Scheme before September 1, 2014.
rule is also applicable to IWs from non-SSA countries who are otherwise
required to become members of the EPF Scheme.
In other words, with effect from September 1, 2014, if an IW from a
non-SSA country, becomes a member of the EPF scheme, and his monthly pay is
more than Rs.15,000/-, then, he would not be required to contribute any amount
towards the Pension Scheme (as in case of his Indian counterpart). However, this does not apply to IWs who are
already members of the Pension Scheme before September 1, 2014.
4. Increase in cap on amount of monthly pay to
be diverted to Pension Scheme: Paragraph 3(2)
of the Pension Scheme has been amended to specify that where monthly Pay of a
member covered under the Pension Scheme exceeds Rs. 15,000/-, the contribution
payable by the employer would be limited to the amount payable on his pay of
Rs. 15,000/- only (earlier the limit was Rs. 6,500/-).
be diverted to Pension Scheme: Paragraph 3(2)
of the Pension Scheme has been amended to specify that where monthly Pay of a
member covered under the Pension Scheme exceeds Rs. 15,000/-, the contribution
payable by the employer would be limited to the amount payable on his pay of
Rs. 15,000/- only (earlier the limit was Rs. 6,500/-).
The
above cap does not apply to IWs from non-SSA countries, who are otherwise
required to become or are a member of the Pension Scheme. In other words, pension will be payable on
8.33% of total monthly pay for such employees.
above cap does not apply to IWs from non-SSA countries, who are otherwise
required to become or are a member of the Pension Scheme. In other words, pension will be payable on
8.33% of total monthly pay for such employees.
5. Option to contribute pension on basis of higher
salary: Prior to September 1, 2014, a resident employee could choose to
contribute to Pension Fund under the Pension Scheme, beyond the amount payable
on a monthly pay of Rs. 6,500/, by virtue of proviso to Paragraph 11(3) of EPS
Scheme.
salary: Prior to September 1, 2014, a resident employee could choose to
contribute to Pension Fund under the Pension Scheme, beyond the amount payable
on a monthly pay of Rs. 6,500/, by virtue of proviso to Paragraph 11(3) of EPS
Scheme.
The
said proviso has now been omitted. Accordingly, the option to contribute to
Pension Fund on a monthly pay higher than Rs. 15,000/- is no longer available
to new resident members.
said proviso has now been omitted. Accordingly, the option to contribute to
Pension Fund on a monthly pay higher than Rs. 15,000/- is no longer available
to new resident members.
This
provision does not affect persons who were already contributing to Pension Fund
on a higher salary before September 1, 2014. Such persons may continue to
contribute on salary exceeding Rs. 15,000/- per month, subject to the
following:
provision does not affect persons who were already contributing to Pension Fund
on a higher salary before September 1, 2014. Such persons may continue to
contribute on salary exceeding Rs. 15,000/- per month, subject to the
following:
(a) Such option must be exercised by the existing
member by February 28, 2015 (extendable by RPFC by 6 months, on sufficient
cause shown by member);
member by February 28, 2015 (extendable by RPFC by 6 months, on sufficient
cause shown by member);
If
the member exercises no option within such period (or extended period), it
would be deemed that member has not opted for contribution over wage ceiling of
Rs. 15,000/-.
the member exercises no option within such period (or extended period), it
would be deemed that member has not opted for contribution over wage ceiling of
Rs. 15,000/-.
(b) Such members would have to contribute @1.16%
of monthly pay exceeding Rs.15,000/- as an additional contribution, from and
out of the contributions payable by the employees for each month.
of monthly pay exceeding Rs.15,000/- as an additional contribution, from and
out of the contributions payable by the employees for each month.
6. Increase in cap on amount of monthly pay for
purposes of contribution to the Employees’ Deposit Linked Insurance Scheme (“EDLI
Scheme”): As in the case of Pension Scheme, the
EDLI Scheme has been amended to provide that contribution under EDLI Scheme
shall be limited to a monthly pay of Rs. 15,000/- only, if monthly pay of
employee exceeds said amount. The above cap applies to international workers also.
purposes of contribution to the Employees’ Deposit Linked Insurance Scheme (“EDLI
Scheme”): As in the case of Pension Scheme, the
EDLI Scheme has been amended to provide that contribution under EDLI Scheme
shall be limited to a monthly pay of Rs. 15,000/- only, if monthly pay of
employee exceeds said amount. The above cap applies to international workers also.
7. Furthermore,
the benefits payable under Paragraph 22 of the EDLI scheme on death of an
employee etc have been increased by 20%.
the benefits payable under Paragraph 22 of the EDLI scheme on death of an
employee etc have been increased by 20%.
8. Summary
of contributions under EPF Act consequent to the above amendments is specified
separately for normal employees and for international workers as under:
of contributions under EPF Act consequent to the above amendments is specified
separately for normal employees and for international workers as under:
Domestic employees
(a)
Employee’s contribution to PF – 12%[2]
of ‘monthly pay capped at Rs.15,000/-’, for existing members, and non-members
who take up employment on or after 01/09/2014
Employee’s contribution to PF – 12%[2]
of ‘monthly pay capped at Rs.15,000/-’, for existing members, and non-members
who take up employment on or after 01/09/2014
(b)
Employer’s contribution to PF – 12% of ‘monthly pay capped at Rs.15,000/-’, for existing members and non-members who take
up employment on or after 01/09/2014
Employer’s contribution to PF – 12% of ‘monthly pay capped at Rs.15,000/-’, for existing members and non-members who take
up employment on or after 01/09/2014
(c)
Proportion of employer’s contribution in (b) above, which is to be diverted to
Pension
Proportion of employer’s contribution in (b) above, which is to be diverted to
Pension
–
For non-member who has joined on or after 01/09/2014: Nil if monthly pay > Rs.
15,000/-, else same as for existing members below;
For non-member who has joined on or after 01/09/2014: Nil if monthly pay > Rs.
15,000/-, else same as for existing members below;
–
For existing members of PF or Pension Scheme – 8.33% of monthly pay capped to
Rs. 15,000/-[3]
For existing members of PF or Pension Scheme – 8.33% of monthly pay capped to
Rs. 15,000/-[3]
(d)
Employers’ contribution to EDLI – 0.50% of ‘monthly pay capped at Rs.15,000/-’,
for existing members, and non-members who take up employment on or after September
1, 2014.
Employers’ contribution to EDLI – 0.50% of ‘monthly pay capped at Rs.15,000/-’,
for existing members, and non-members who take up employment on or after September
1, 2014.
Note
that the employer and employee can choose to contribution to Provident Fund in
excess of monthly pay of Rs. 15,000/-.
that the employer and employee can choose to contribution to Provident Fund in
excess of monthly pay of Rs. 15,000/-.
International workers
from non-SSA countries
from non-SSA countries
(a)
Employee’s contribution to PF – 12% of monthly pay, for existing members, and
non-members who take up employment on or after September 1, 2014.
Employee’s contribution to PF – 12% of monthly pay, for existing members, and
non-members who take up employment on or after September 1, 2014.
(b)
Employer’s contribution to PF – 12% of monthly pay, for existing members, and
non-members who take up employment on or after September 1, 2014.
Employer’s contribution to PF – 12% of monthly pay, for existing members, and
non-members who take up employment on or after September 1, 2014.
(c)
Proportion of employer’s contribution in (b) above, which is to be diverted to
Pension
Proportion of employer’s contribution in (b) above, which is to be diverted to
Pension
–
For non-member who has
joined on or after September 1, 2014: Nil if monthly pay > Rs. 15,000/-,
else same as for existing members below;
For non-member who has
joined on or after September 1, 2014: Nil if monthly pay > Rs. 15,000/-,
else same as for existing members below;
–
For existing members of
PF or Pension Scheme – 8.33% of monthly pay;
For existing members of
PF or Pension Scheme – 8.33% of monthly pay;
(d)
Employers’ contribution to EDLI – 0.50% of ‘monthly pay capped at Rs. 15,000/-,
for existing members, and non-members who take up employment on or after September
1, 2014.
Employers’ contribution to EDLI – 0.50% of ‘monthly pay capped at Rs. 15,000/-,
for existing members, and non-members who take up employment on or after September
1, 2014.
–
Madhusudan Bose
Madhusudan Bose
[1] ‘Pay’
includes basic wages with dearness allowance, retaining allowance (if any) and
cash value of food concessions.
includes basic wages with dearness allowance, retaining allowance (if any) and
cash value of food concessions.
[2] This will be 10% in case of specified establishments notified by
the Central Government.
the Central Government.
[3] No option
to contribute to Pension Fund beyond cap after 01/09/2014. Existing members who had earlier exercised
this option may however continue to contribute in excess of the cap as before
(please refer discussion above).
to contribute to Pension Fund beyond cap after 01/09/2014. Existing members who had earlier exercised
this option may however continue to contribute in excess of the cap as before
(please refer discussion above).