THE EMPLOYEES’ PROVIDENT FUND AND MISCELLANEOUS PROVISIONS ACT, 1952

Prepared By: Name:Chiranjeev Sanyal

Designation: MT(HR)

BASIC WAGES- THE MOST IMPORTANT DEFINITION

TA, DA, HRA , GIFTS NOT PART OF BASIC WAGES

Definition of an employee• f) “employee” means any person who is employed for wages in any

kind of work, manual or otherwise, in or in connection with the work of an establishment and who gets his wages directly or indirectly from the employer, and includes any person,- (i) employed by or through a contractor in or in connection with the work of the establishment; (ii) engaged as an apprentice, not being an apprentice engaged under the Apprentices Act, 1961 (52 of 1961) or under the standing orders of the establishment;

• HR NOTE: All employees irrespective of their nature of job contract are covered under the epf act. Only apprentices having a proper contract of apprenticeship are not covered under the act.

India: The Basic Wages Conundrum Under The EPF Act

• The definition of 'basic wages' under the Act and the salary components to be accounted for when determining such basic wages for the purposes of provident fund contributions has long been the subject matter of debate. While various stakeholders have taken the view that any special allowances (in addition to those specifically excluded) payable to an employee should not form part of an employee's basic wages, the Employees' Provident Fund Organisation (EPFO) and various courts of law have adopted contradictory approaches.

Basic Wages Conundrum Contd.

By way of a circular dated 20 November 2012 (Ref: 7(1)2012/RCs Review Meeting/345) (First Circular), the EPFO clarified that all allowances which are ordinarily, necessarily, and uniformly paid to employees are to be treated as a part of the basic wages. The First Circular stated that all allowances such as conveyance, special allowance, etc., are to be treated as a part of basic wages since these are paid ordinarily, necessarily, and uniformly to employees. Therefore, barring the specific exclusions set out under Section 2(b) of the Act, all additional allowances payable to an employee were to be treated as part of the 'basic wage' component.

The notification of the First Circular was met with severe resistance from employers and employees alike since it had a direct impact on an employee's net take-home salary. Owing to mounting pressure, the EPFO placed the First Circular on abeyance until further orders by way of circular dated 18 December 2012 (Ref: 7(1)2012/RCs Review Meeting/21224) (Second Circular). Despite such abeyance, various courts of law continued to take contradicting views while analysing the components of basic wages for the purposes of determining provident fund contributions.

Whirlpool of India Limited v Regional Provident Fund Commissioner• In the matter of Whirlpool of India Limited v Regional Provident Fund

Commissioner, a single bench of the High Court of Delhi held that 'canteen allowance' was very much a part of an employee's basic wages. It observed that the use of the words 'any other similar allowances' in the definition of basic wages provided under the Act, was to be read in conjunction with the word 'commission'. Hence, canteen allowances would not fall under the gamut of specific exemptions listed under Section 2(b) of the Act.

Group 4 Securities Guarding Limited v Regional Provident Fund Commissioner• In analysing the permissibility of an employer to structure an employee's wages under

various components, a division bench of the High Court of Karnataka in the case of Group 4 Securities Guarding Limited v Regional Provident Fund Commissioner held that: "... any agreement entered into between the employer and its employees for splitting of the amount payable by the employer to its employees for the service rendered by them, cannot take away the power of the Commissioner under Section 7A of the Act to look into the nature of the contract entered into between the employer and its employees and decide that splitting up of the pay payable to the employees under several heads is only subterfuge to avoid payment of contribution by the employer to the provident fund. It was open to the Commissioner to lift the veil and read between the lines to find out the pay structure fixed by the employer to its employees and to decide the question whether the splitting up of the pay has been made only as a subterfuge to avoid its contribution to the provident fund."

CONTRIBUTIONS

Employees’ Provident Funds Scheme, 1952

12% Employee contribution + 3.67% employer contribution + 0.85% admin charges

Employees’ Deposit-Linked Insurance Scheme, 1976 (EDLI) and

Employees’ Pension Scheme, 1995 (EPS) (Earlier the Employees’ Family Pension Scheme, 1971

8.33% employer contribution. No admin charges

According to the EPF withdrawal rules, you can get back your EPF money only under three situations—after the retirement age (which has been extended from 55 to 58), unemployed for more than two months, or death before retirement.

EPF also offers the nomination facility, that is, an employee can nominate his mother, father, spouse or children to receive the money in the event of the death of the employee. However, an employee cannot nominate his brother or sister to take their EPF money.

The EPF withdrawal amount is tax free only if you get it after retirement or have been working continuously for five year. However, you will be taxed if you withdraw your EPF money before completing five years of continuous service and if the amount is above Rs 30,000.

There are special provisions for women who have subscribed under EPF. Women who quit their job for getting married, or during pregnancy or childbirth will not have to wait for two months to withdraw and can do so immediately.

EPF WITHDRAWL NORMS

EDLI-LATEST DEVELOPMENTS

But in Sep 2015, the EPFO announced increase in the maximum amount assured under its Employees Deposit Linked Insurance Scheme (EDLI) to Rs 7.8 lakh from the existing Rs 3.6 lakh. The claim amount of the EDLI is decided by the last drawn salary of the employee.

The claim amount would be 30 times the salary.For this calculation salary is basic pay plus DA or Dearness Allowance. The upper limit of wage for the EDLI is Rs15,000.

Along with this, the bonus of Rs 1.5 lakh is also given.

Thus, the maximum EDLI claim amount would be Rs 6 lakh [(30 x15,000) + 1,50,000].

The condition of continuous employment of one year under current employer before being eligible for insurance benefits was also removed.

Alternatives of EDLI• An employer can opt out of EDLI but he has to go for group term insurance

cover to all the employees and the benefit of such group term insurance scheme should be equal to or better than the EDLI. The EPFO itself approves the group term insurance scheme in lieu of EDLI. There are many insurance companies that have filed for this product under IRDA and provide higher coverage than EPFO. Also, for the same, premium charged is lesser than 0.5 per cent . With an insurance company, the employer has another advantage i.e. flexibility of flat coverage across all employees irrespective of the pay (low basic pay employees will enjoy higher coverage which otherwise might not fulfil the EPFO coverage criteria/ conditions) or graded based on the basic pay. This is a yearly renewable product.

UAN 2.0

a. The UAN in respect of member with first time employment would be got generated by the employer prior to filing of ECR by employer for that member. In the earlier version, the employer used to file ECR with member IDs and the UAN was allotted later on the basis of first time declaration made by the employer.

b. The linking of the existing UAN of the member with the present employment would necessarily be done by the employer before filing of UAN based ECR. Earlier this was done after filing of ECR based on member IDs.

c. The Electronic Challan cum Return would be UAN based instead of member ID based.

d. The member details i.e. name of member, date of birth, father’s / Husband’s name etc. would be same for all the employments, since the details would be fetched from UAN database of member

Q. How is the revised version of UAN different from earlier version?

Ans: The revised version of UAN has the changed process of UAN generation and linking as explained below:

HOW TO CALCULATE PENSION??The calculation will be based on whether the joining date is after 15.11.1995. if it is so thenEarlier pensionable salary was 6500 before 1 Sep 2014. after that it has been increased to 15000.So what that means is earlier a person was contributing a maximum of 8.33% of 6500 which is Rs 541/- which now has increased to 1250/-.EPS Pension = Average Salary X Number of Years Service 70If person has completed more than 20 years in service then add two years bonus in above equation.

Example to Illustrate Pension• For example say average salary was 20000. date of joining is 01.01.1996.

if he turns 58 years on 01.01.2017.• So number of years service is 21 years. But till 01.09.2014 pensionable

salary was 6500. So for 19 years the eps pension isEPS Pension = Average Salary X Number of Years Service 70• =(6500*19)/70 which is Rs 1764/-• 2 years of pensionable salary of 15000 which amounts to Rs 429/- plus 2

years extra since he has completed 20 years.• So total pension is (1764+429+429) which is Rs 2622/-

ADVANCES IN EPF NORMS

PURCHASE OF HOUSE/ CONSTRUCTION OF HOUSE

Withdrawals from EPF A/c for Repayment of Home Loan

ADVANCE FOR ILLNESS

ADVANCE FOR MARRIAGES

PF DEDUCTION FOR INTERN/TRAINEES???

• The answer lies in the The Regional Provident Fund Commissioner, Mangalore ... vs M/S Central Aercanut & Coca, Mangalore on 30 January, 2006

Central Aercanut invited applications from the intending applicants for undergoing training at its Chocolate Factory, Puttur on a stipend of Rs.600/- per month which may be increased to Rs.800/- per month after six months. It was also provided that the successful candidates may be considered for regular posting in the factory. By its resolution dated 21.1.1990 after interviewing 270 applicants, 45 persons were selected. By a combined order dated 3.2.1990, Managing Director notified the 45 persons who were selected. It was clearly indicated therein that the training in the factory does not entitle any trainee to claim right of appointment after completion of training period. It was also stipulated that if any trainee leaves the factory within one year, he was required to refund the amount received by him as stipend. Notice was issued by the PF Commissioner purportedly under Section 7-A of the Act in respect of the said 45 trainees. By order dated 15.5.1991 the appellant held that the trainees were employees for the purpose of the Act and the respondent is liable to pay the quantified amount.• Writ application was filed by the respondent questioning the determination. A learned Single

Judge with reference to various provisions of Industrial Employment (Standing Orders) Act, 1946 (in short 'Standing Orders Act') and The Apprentices Act, 1961 (in short the 'Apprentices Act') held that the demand was unsustainable. A writ appeal was filed before the Division Bench which as noticed above dismissed the same.

PF DEDUCTION FOR INTERN/TRAINEES(Contd.) Supreme Court Judgement

• The Supreme Court has held that an apprentice or a trainee is not an employee and the employer is not liable to contribute Provident Fund for him or her.

• A Bench, comprising Justice Arijit Pasayat and Justice R. V. Raveendran, held that trainees are apprentices engaged under the Standing Order of an organisation or under the Apprentices Act and will not come within the ambit of the Employees Provident Fund and Miscellaneous Provisions Act, 1952. The Bench noted that Section 2 (f) of the EPF Act "defines an employee to include an apprentice, but, at the same time, makes an exclusion in the case of an apprentice engaged under the Apprentices Act or under the Standing Orders. Under the Model Standing Orders an apprentice is described as a learner who is paid allowance during the period of training." Therefore, employers are not obliged to contribute to the PF for them.

• The Bench, by its order, upheld a judgment of the Karnataka High Court rejecting the claim of 45 trainees of the Central Arecanut and Coca Marketing and Processing Co-op. Ltd, Mangalore, claiming PF payment. The Regional Provident Fund Commissioner (RPFC), Mangalore, had held that the trainees were employees for the purpose of the Act and the respondent was liable to pay the quantified amount.

• The company challenged this order in the High Court and the court concluded that trainees were not employees as per the Act and reversed the RPFC's order.

• Dismissing the appeal, the apex court held that "in the case at hand, trainees were paid stipend during the period of training. They had no right to employment, nor any obligation to accept any employment, if offered by the employer. Therefore, the trainees were apprentices engaged under the "Standing Orders" of the establishment. That being so, the view of the learned single judge as affirmed by the Division Bench of the High Court cannot be faulted."