Overview of Employees Provident Fund Law
In a sincere effort to promote social security of employees, the Government of India enacted the Employees Provident Fund and Miscellaneous Provisions Act, 1952. The Act provides for the formulation and implementation of the Employee’s Provident Funds Scheme and the Employee’s Pension Scheme both of which help regulate and effectively employ the objectives. Employees Provident fund is in the nature of a savings scheme, which is executed and managed by the Government through its agency, the Employees Provident Fund Organisation (EPFO). Under the scheme employers and employees make monthly contributions towards the fund, which are than accumulated over a period of time and can be claimed by the employee.
Applicability to Establishments
The provisions of this Act are applicable to every establishment in which 20 or more persons are employed. If there are less than 20 employees employed in an establishment an employer can still opt to follow the provisions of the Act.
Note: The Ministry of Labour and Employment, made the provisions of the Provident Fund Act applicable to IT AND ITES establishments via notification S.O.1190(E), dated 27th July 2006.
Employee’s Eligibility to receive PF
Employees whose pay (basic wage + dearness allowance + food allowance + special allowance) is less than Rupees Fifteen thousand (Rs. 15,000) per month on the date of joining the establishment are eligible to enroll under the Employees Provident Fund Scheme.
An employee who’s wage is above Rs.15,000/- may also seek voluntary coverage under the Act. The employee earning wages above Rs.15,000/- and his employer shall make a joint request in writing to either the Regional Provident Fund Commissioner (RPFC) or the Assistant Provident Fund Commissioner (APFC) for enrollment under the scheme, provided that such a request has to be made within 6 months of the employee joining the establishment.
Employer and Employee Contributions
The employer and the employee make monthly contributions in the Provident Fund in accordance with the percentage provided under the Act.
Employers contribution: The employer should make a contribution of 12% of the employees wages. Of the total 12% contributed by the employer, 8.33% is diverted to Employees Pension Fund and the remainder of 3.67% remitted to the employees provident fund account.
Employees contribution: Employee should make an equal contribution i.e of 12% of his/her wages and the entire sum is transferred to the provident fund.
Government Contribution: The Government makes a contribution of 1.16% towards the employees pension scheme.
Contributions towards Provident Fund and Employee Pension Fund
|Employee Pension Fund||8.33%||–||1.16%|
Note: While calculating the quantum of contribution payable towards the provident fund, basic wage includes dearness allowance, retaining allowance and cash value of food allowances.
In a recent judgment The Supreme Court held that “Special Allowances” paid to an employee have to be included in “Basic Wage” while calculating the quantum of Provident Fund. Read more at https://www.legawise.com/supreme-courts-new-rule-to-calculate-pf-contribution
Remitting PF to Employee
The employer is responsible for remitting the EPF contributions on behalf of both himself and the employee. The employer must remit the amount of contributions to the PF account within 15 days of the close of every month. The employer may deduct the amount of employees contribution directly from his/her wages. The employer cannot deduct his contribution from the wage of the employee, this is prohibited under the Act and attracts criminal action.
CAN AN EMPLOYEE MAKE A HIGHER AMOUNT OF CONTRIBUTION TOWARDS THE PROVIDENT FUND?
An employee may make a voluntary contribution over and above the 12% of the mandatory contribution, but the employee can in no manner obligate or impose a higher contribution on his/her employer.
For e.g. If Yash is employed in PQR Co Ltd, he may make a contribution of 15% of his wages towards the Provident Fund Account. Yash paying a higher contribution would in no manner impose an additional liability on PQR for payment of a higher rate of contribution, PQR cannot be obligated to match his contribution, their contribution would be limited to the statutory limit of 12%.
CAN A PROVIDENT FUND ACCOUNT BE TRANSFERRED IF THERE IS A CHANGE IN EMPLOYMENT ?
When an employee takes up employment in a new establishment he can transfer his Provident Fund Account by making an application in FORM-13 to the Regional Provident Fund Commissioner (RPFC). Upon successful completion of all the procedures the transferee Regional Provident Fund Commissioner (RPFC) will issue a Transfer Certificate.
CAN AN ESTABLISHMENTS BE EXEMPTED FROM THE APPLICABILITY OF THE ACT?
The Central Government has the power to exempt an establishment/person/class of persons from the applicability of any or all of the provisions of the Act. If an establishment has its own scheme which is in the nature of Provident fund, pension, gratuity etc and this scheme provides higher or more favourable benefits in comparison to the benefits provided under the Act, then under such circumstances, the Central Government may exempt such establishments. A list of all the establishments exempted by the Central Government from the provisions of the Act is available on the Employee Provident Fund Organisations (EPFO) official website.
An EPF member i.e an employee covered under the Provident Fund Scheme should make a declaration in FORM-2, nominating a person to receive the amount in his/her Provident Fund account in the event of his/her death before the amount standing to his/her credit has become payable. If no nomination has been made then the whole amount is remitted to the family members of the deceased member in equal shares.
Penalty for Contravention
An employer contravening the provisions of the Act attracts criminal liability of an imprisonment which may extend to 3 years or a fine of Rs. 10,000/-.