Recommendation presented to Employee Provident Fund Organization

EPFO

Under the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (“EPF Act”), every employee working in a factory or any other establishment to which the Employees’ Provident Fund Scheme, 1952 (“Scheme”) applies, is required to become a member of the Employees’ Provident Fund (“EPF”). As per the Scheme, an excluded employee is an employee earning more than INR 15,000/- per month. Such employees are not mandated to become members of the EPF or make contributions. While excluded employees are not required to become members of the EPF, the law does not prohibit them from becoming a member.

Many establishments choose to enroll employees earning more than INR 15,000/- per month as members and bring them under the purview of the Provident Fund (PF). In such cases, the employer has the option to either restrict contributions to the statutory ceiling of INR 15,000/- per month or contribute based on the employee’s actual salary, which may exceed INR 15,000/-per month. However, this is allowed only if the employer provides an undertaking in writing, agreeing to pay the administrative charges on the actual salary. The Contribution payable by the employer under the scheme is 12% (in a few industries it is 10%) of the monthly pay of the employee. However, the EPF Act and the Scheme also permits employees to contribute more than the mandatory 12%, which is termed as Voluntary Contributions towards Provident Fund (“VPF”). Employers, however, are not obligated to pay the amount exceeding the statutory rate.

One of the practices followed by some employers is that while discharging their obligations, limit contributions to the statutory ceiling of INR 15,000 even when an employee’s actual salary is higher. They allow employees to make additional contributions, either as a percentage of their actual salary or a fixed amount, mistaking these additional contributions to be VPF. However, the statute does not permit such contributions, and these contributions cannot be considered as VPF.  We also noted that the Employees Provident Fund Organisation (“EPFO”) portal lacks a control mechanism to prevent this type of contribution. There are two different quantum of pay here, ie) INR 15000 for the mandatory contribution and the actual salary of an employee whose salary is more than INR 15,000/- per month. The administrative charges (0.5% of the monthly pay) are levied only on INR 15000 and not on the actual salary.

Upon identifying this procedural deviation, we recognized the need to streamline the process in the best interests of all stakeholders. We formally made a recommendation to the EPFO and the Ministry of Labour and Employment, for the establishment of a control mechanism in the EPFO portal. Our proposal aimed to prevent employers from calculating VPF contributions for employees (members) based on a different quantum of pay or accepting a flat sum.

The EPFO recognized our recommendation and implemented the control mechanism in the EPF portal, thereby eliminating ambiguity, preventing revenue loss to the PF department regarding administrative charges, and upholding the spirit of the law. The employer is mandated to provide an undertaking and the system is enabled to compute the “Admin charges” corresponding to the PF Wages by default.

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