LABOUR LAW-II

A CRITICAL STUDY OF EMPLOYEES’ PROVIDENT FUND

AND MISCELLANEOUS PROVISIONS ACT, 1952

SUBMITTED BY:

PARUL MEHRA

I.D. No. 1991

IV Year, B.A. LL.B. (Hons.)

NATIONAL LAW SCHOOL OF INDIA UNIVERSITY

BANGALORE

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TABLE OF CONTENTS

Research Methodology...............................................................................................................3

Introduction................................................................................................................................4

Chapter 1- The Indian Scenario.................................................................................................6

Chapter 2- Policy Choices for India.........................................................................................10

Chapter 3- Recent Important Amendments to the Schemes under EPF Act............................14

Chapter 4: The Two Different Perspectives.............................................................................19

Conclusion................................................................................................................................21

Bibliography.............................................................................................................................22

Telephonic Interviews..........................................................................................................22

Working Papers....................................................................................................................22

Books....................................................................................................................................22

Articles.................................................................................................................................22

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RESEARCH METHODOLOGY

AIMS AND OBJECTIVES

The aim of this paper is to critically analyse the EPF Act on aspects including its

implementation in India, its impact on the Indian security system and the effects of the recent

amendments.

The objectives are to broaden understanding into the basic features of the act, the functioning

of the schemes and the system of social security in India

SCOPE AND LIMITATIONS

The basics of the EPF Act along with an outline of the broad schemes under the Act has been

covered in the preceding part of the paper as was discussed with the course teacher and hence

lie beyond the scope of this paper which focuses more on some key issues related to

implementation and the recent amendments.

RESEARCH QUESTIONS

● Does the EPF Act function in the manner it was intended?

● How does the EPF Act impact the broader social security situation in India?

● What are the effects of latest amendments to the Act?

MODE OF CITATION

NLS Uniform Citation Style has been followed.

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INTRODUCTION

“The rapid ageing of India’s population, in conjunction with migration out of rural areas and

the continued concentration of the working population in the informal sector, has highlighted

the need for better economic security arrangements for the elderly. Traditional family ties that

have been key to ensuring a modicum of such security are beginning to fray, and increased

longevity is making care of the elderly more expensive. As a result, the elderly are at

increased risk of being poor or falling into poverty. In parallel with its efforts to address this

issue, the Government of India and some of the Indian states have initiated an array of

programmes for providing some level of access to health care or health insurance to the great

majority of Indians who lack sufficient access. Formal-sector workers have greater social

security than those in the informal sector, but they only represent a small share of the

workforce. Women are particularly vulnerable to economic insecurity. India’s experience

offers some lessons for other countries. Although there is space for private initiatives in the

social security arena, it is clear that most such efforts will need to be tax-financed. The role

that private providers can play is substantial, even when most funding comes from public

sources, but such activity will face greater challenges as more individuals seek benefits. India

has also shown that implementation can often be carried out well by states using central

government funds, with a set of advantages and disadvantages that such decentralization

brings. Finally, India’s experience with implementation can offer guidance on issues such as

targeting, the use of information technology in social security systems, and human resource

management.”

Over the last few years, various issues pertaining to pension funds have often assumed a

central position in public policy discussions in many countries. This has been so for various

reasons, including, inter alia: ensuring fiscal solvency of governments without abdicating

responsibility for providing income security for the old; inter- generational distribution and

equity; and development of capital markets in emerging economies. Almost inevitably, these

issues have come to the surface due to an important concern in some of the OECD countries,

namely, whether the current state-run system can continue to deliver benefits at levels that the

polity have got used to.

At present, most formal systems of old-age security (which have three major pillars - saving,

an element of redistribution and insurance), are publicly managed systems that are financed

by payroll taxes on a largely pay-as-you-go basis, so that today's workers’ pay the pensions

of those who have retired. It is widely acknowledged that the current pay-as-you-go systems

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in many developed countries is fiscally unsustainable - usually under-funded - and, in some

countries, even subject to politically motivated meddling.

In fact, most industrialised countries and older Latin American and eastern European

countries are increasingly relying on growing payments from the national treasury to continue

providing old-age financial benefits. The causes of these concerns are ageing population,'

high unemployment, slow economic growth and rising expenditure on social safety net

entitlements (including unemployment benefits).

In a wider context, ageing inevitably puts added strain on extended families and other

traditional ways of supporting the old which are already weakening under the pressure of

urbanisation, industrialisation and increased mobility. The concomitant consequences have

been high dependency ratios and fiscal stress on the government accounts. Some of the

concerns enunciated above are likely to be exacerbated in the coming years. Over the next

five decades or so, the proportion of the world's population that is over 60 will rise to 20.3

per cent from 9 per cent at present. In the case of India, the fraction of the population in this

age group will increase almost three-fold from 7.1 per cent to 20.2 per cent by 2050.

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CHAPTER 1- THE INDIAN SCENARIO In the case of India, the issues in this particular area of public policy are slightly different

from those in the mature economies, the central concern would seem to be prevention of old-

age poverty, and also at the same time avoiding high pension costs for the government. In this

regard, it may be worthwhile, at the outset, to flag some of the key issues that need to be kept

in mind when discussing the Indian pension (or provident) fund based old-age benefit

framework.1

The primary challenge is to increase the coverage of present pension/provident fund systems.

More specifically, how to widen the pension fund net to include economic agents that are in

the informal sector - employees, employers and self-employed. This is important, at least

partly, from an equity point of view for providing benefits among potentially a much larger

number of elderly than at present.

For most employers, the provision of social security is legally underpinned by the Employees'

Provident Funds and Miscellaneous Provisions (EPFMP) Act, 1952. Currently, there are 19.3

million employees in 2,65,000 establishments covered under the schemes provided by the

1952 act. In comparison, informal or unorganised sector (industrial and agricultural)

employment is much larger and is estimated to be about 300 million; almost all workers and

the self-employed in this sector do not have the 'umbrella' of post-retirement financial

security. In this context, it should be mentioned that a few state governments do provide

some financial assistance for the old-aged destitute; but the schemes, in addition to having,

effectively, narrow coverage, also provide very limited benefits.2

The coverage of the schemes has been limited to the relatively and potentially section of the

most powerful productive population, viz, organised labour, totally unmindful of the rest.

This is why social security legislation has been subsumed under labour legislation. The

choice of coverage thus is in direct contradiction to Articles 41 and 42 of the Constitution

where, those in deserved need are to be given priority3. To unorganised labour, in the

agricultural no legal protection, even of the most rudimentary nature, is offered. If for the

1 Vivek Moorthy, Setting Small Savings and Provident Fund Rates, 36(21) ECONOMIC AND POLITICAL WEEKLY 3941 (2001).2Mukul G. Asher, Amarendu Nandy, Reforming provident and pension fund regulation in India, 14(3) JOURNAL OF FINANCIAL REGULATION AND COMPLIANCE 273- 275 (2006). 3 S. Irudaya Rajan et. al., India’s Elderly: Burden or Challenge? 36, 37 (Sage Publications: New Delhi, 1999).

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sake of argument, we assume the ESI and EPF to be the ideals form of social security, then

they cover a negligible percentage the total of not only population, but also of the labour

force.

The coverage of the schemes also arbitrary because only which was already to a certain

extent covered by earlier legislation is covered by them, such as by the Workmen's

Compensation Act, the Maternity Benefit Act, besides by the other lesser important ones as

the Mines and Plantation Acts. This leaves the large majority of the potentially productive

population, the agricultural labour, still unprotected and therefore justifies the Acts being

labelled arbitrary. Nor was the choice of coverage dependent on the economic ability or

economic development of the country4.

The Government may argue that, the choice was not arbitrary but based on the principle that

the productive population should be first recompensed for the economic development of the

country. But roughly 50 per cent of the national income is derived from agriculture. Yet

agricultural labour is totally neglected. Its annual income is a mere fraction of the already low

per capita income. 5

Another argument that the Government can put forth is that, since the ESI and the EPF work

on a contributory method, well-established employers alone will be able to fulfil social

obligations. But if such arguments are used, then the State's obligation - either the direct one

of the financial responsibility or the indirect one of a controlling authority - to provide social

security is negated. It would be interesting here to record that, in 1965, the ESI Review

Committee (which also had two representatives from labour) rejected extension of the ESI to

mines and plantations. Their arguments against such an extension are revealing: "A large

bulk of plantation labour will be exempted from payment of employees* contribution because

of their low rates of wages. Extension of the Act to plantation labour at this stage is,

therefore, bound to make serious inroads in the funds of the corporation".

No reference was made to the statutory rate of contribution that the employers pay nor to the

State's right to compel the employers to pay what is legally due. This also makes nonsense of

the popular argument that the contributory scheme can be instituted only in those sectors

where the employers have the financial capability to do so.

4 Id. 5 Social Security Legislation in India- I: The Employees’ Provident Fund Scheme, 2(39) ECONOMIC AND POLITICAL WEEKLY 1769 (1967).

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One is almost capacity compelled to conclude that the social security that the Constitution

promises is conditional not on economic but on administrative capacity or development of the

State. Since social security legislation is treated as a part of labour legislation in India, it will

continue to be treated as such for the purpose of this analysis. There is still no uniform

protective labour legislation. The degree of protection the legislation is crudely correlated

either to the productivity of labour or to the power of organised labour. The first correlation is

incidental, the second is more real. Although labour productivity on the plantations is low

because of primitive techniques, labour there is organised, and in terms of power relations

today stands high - which may account for the greater amount of fringe benefits, such as for

instance housing and compulsory free schooling for children than in even the manufacturing

section6.

Again if we overlook this gross limitation in coverage and accept for the moment

Government's sole responsibility to be that of the controlling authority, the question remains

as to whether the Acts provide adequate security to those who are formally covered by these

legislation? The purpose of the EPF is to provide security to the worker (subscriber) in his old

age, and of largely during his work life in the form of medical treatment to him and to

members of his family during sickness, of cash benefits when he is unable to work and earn

his wages because of sickness or injury that either permanent or temporary, may be and of

maternity benefits for the female workers.7

The Indian system borrowed its ideas from the British8, but its evolution has been so different

that there seems little in common between the two now, except the form: both are compulsory

and contributory in nature. The British system is tripartite in contribution and the Indian

bipartite or largely so. In India, Government takes over only the administrative not the

economic function, and it is not even the controlling authority. The State cannot use its

coercive authority to compel the employer to pay even the statutory contributions.

In the British system, the contributory method is followed where in case the rates of

contribution of certain employees are lower than required then the State takes over the

responsibility of the employers for the incapacitated population. In India only the infirm and

6 Urjit R. Patel, Aspects of Pension Fund Reform: Lessons for India, 32(38) ECONOMIC AND POLITICAL WEEKLY, 2349 (1997)7 Id.8 THE ECONOMICS OF PENSION PRINCIPLES, POLICIES AND INTERNATIONAL EXPERIENCE (Salvador Valdes Prieto Ed., Cambridge University Press: Cambridge, 1997).

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the very young are covered under this. The contributory method is only for a section of the

working population, and the rest are left to their own devices. The benefits are correlated with

the wages, while in Britain they follow the flat rate system which is supplemented with

national assistance so as not to permit standard of living to fall below a certain norm.9

9 Id.

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CHAPTER 2- POLICY CHOICES FOR INDIA

At present there is no real consensus on what policies governments should follow to ensure

an adequate post-retirement (and/or old-age) social safety net for their citizens. The

implications of pursuing different approaches to providing income security for the retired

elderly are widely debated. Even if a consensus existed among industrialised countries, its

application to other countries would not be simple owing to their differing demographics,

economic characteristics and (social) values. The broad policy choices facing India comprise

of the following: (i) continue with the present system of a state- dominated system for

provident/pension fund provision; (ii) keep the state provident fund component of post-

retirement benefits intact and under the aegis of the government, but allow the private sector

to play the central role in the (relatively nascent) pension fund business, that is, have a

combination of state and private provision of benefits for retired employees; and (iii) adopt

the 'contracting out' approach to privatising the sector whereby employers and employees be

allowed to place either a portion or all of the mandatory contributions into privately managed,

fully funded pension schemes; that is, private pension plans based on individual capitalisation

can explicitly substitute for all or part of the state managed system.10 The option that is

exercised will be determined by how best to attain the three social/macro-economic goals that

were enunciated in Section II of the paper, viz, wider coverage; an increase in the quantum of

institutional savings; and development of capital markets, especially at the longer end of the

tenor spectrum.11

Given the introduction of wide-ranging economic reforms in most spheres of economic

activity in the country, a policy implication congruent with these important changes would

require a considerably enhanced role for the private sector in the provision of pension

benefits on a commercial basis. The present state managed system has failed to broaden the

'umbrella' of post- retirement financial security (in terms of coverage), and is also widely

viewed as being cumbersome and providing indifferent service. For example, an exempted

scheme often takes 6 months to obtain permission from the CPFC to liquidate investments for

paying retirees.12 By allowing private providers of pension products. much needed

heterogeneity will be added to the financial markets, thereby enhancing its allocative

10 Karunarathne, Wasana and Goswami, Ranadev, 55(89) Reforming Formal Social Security Systems in India and Sri Lanka, INTERNATIONAL SOCIAL SECURITY REVIEW 89, (.2002)11 Patel, supra note 5, at 2356. 12 Goswami, Ranadev, 55 Old Age Protection in India: Problems and Prognosis, INTERNATIONAL SOCIAL SECURITY REVIEW 95 (2002).

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efficiency. It is quite clear that private sector competition will have to play a crucial role in

achieving the three basic goals.

Moreover, taking a long-term view (which should be the only relevant view in the pension

business), to ensure that the state is not faced with unfunded liabilities in the future,

individual retirement accounts of the defined contribution type need to be encouraged.13

To increase the number of people who would enrol in a pension plan, the following changes

could be considered: (i) make it mandatory for self-employed professionals in the fields of

law, medicine, accountancy, etc, to enrol in a pension fund scheme; since professional

associations generally have records, this can, in principle, be implemented relatively easily;

and (ii) tighten 'watchdog' provisions considerably to ensure that establishments that are

required to initiate schemes for employees actually do so. Empirical evidence suggests that

there is a certain amount of 'pension scheme evasion' in both the industrial sector and in the

rapidly expanding services sector.14 Also, a large number of so-called 'casual' employees in

establishments should come under the net.15 Appropriate exchange of information (and co-

ordination) between agencies can help to reduce evasion. The present investment guidelines

of the government are informed with, essentially, the sole objective of raising cheap finance

for funding the overall public sector borrowing requirement (PSBR) of about 91/2 per cent of

GDP (financial repression has not been limited to the banking system).

The guidelines need to be changed decisively to allow pension funds a wider risk-return

opportunity choice set and facilitating greater risk diversification. For instance, initially they

should be allowed to invest in AAA rated fixed income securities of the private sector;

subsequently investment in the equity of AAA corporates, real estate and gold can also be

allowed subject to ceilings. At the outset, special deposits should be 'freed up' for investment

according to a new set of liberal guidelines. Furthermore, since there is increasing emphasis

on commercialisation of physical infrastructure (power, ports, roads and telecommunications)

in India, private entities for their long gestation investment projects should be allowed access

to long-term financing instruments under a special investment category for pension funds."

13 Asher, supra note 2, at 278-280. 14 Id. 15 Poirson, Hélène, Financial Market Implications of India's Pension Reform (April 2007). IMF Working Papers, Vol., pp. 1, 18- 19 (2007).

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Of course, even with more liberal investment guidelines there would still be sectoral and

group exposure norms that would have to be observed. Table 8 puts forward an end-point for

investment norms that can be phased over, say, two-three years. On the regulatory side,

against the background of a liberal framework, the issue of 'investor protection' should not be

the central tenet.16 The objective of the regulatory framework should be the creation of a

pension fund market within which economic agents can participate with confidence. For two

main reasons this philosophy is preferable: (i) it recognises the central role played by the

market in satisfying the needs of a potential pensioner, and implies that regulators should

reinforce market forces rather than work against them; and (ii) it rejects the paternalistic

implications of the phrase 'investor protection' and recognises instead that the ultimate

responsibility for the decision cannot be taken from the investor.17

Furthermore. the notion carries with it a certain connotation of state bail out (contingent

financial liability) in the event that things go wrong; needless to say, this should be avoided.

The goal should be to promote vigorous competition, where reputations would matter in the

market place, accompanied by the effective enforcement of laws against fraud. This is the

best investor protection. Against this background, suitable amendments to the Employees'

Provident Funds and Miscellaneous Provisions Act, 1952 and the Employees' Pension

Scheme, 1995 would be needed to encourage entry of private providers of pensions; given the

potential size of the market (at least in terms of number of people who presently do not have

any formal post- retirement old-age financial cover), there is enough room for a large number

of players. The present list of 19 norms that need to be satisfied to grant exemption needs to

be done away with. A programme to educate employees would need to be undertaken to

ensure that optimal decisions are reached, in a more liberal environment.18 To formulate

appropriate regulations and supervise an evolving private pension fund industry a free

standing body along the lines of the SAFP in Chile can be contemplated, but representation

from the financial industry, accounting professions, practicing actuaries and financial law

should be considered sine qua non. In fact, it may also be necessary to initially get experts

from countries that have had some experience in privatising the pension fund industry and

setting up of a regulatory framework to advise such a body regarding entry norms (including

16 Id. 17 Moorthy, supra note 1, at 4494 – 4496. 18 Ajit Ranade, Rajeev Ahuja, Money, Banking and Finance, 34(3/4) ECONOMIC AND POLITICAL WEEKLY 203- 206 (Jan. 16-29, 1999).

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minimum capital requirement), exit norms, standards of service, issues of information

disclosure, etc. Since pension fund providers are essentially financial intermediaries, aspects

of overall risk weighted capital adequacy ratios that will need to be maintained will also need

to be formulated based on international norms.19

The body could also consider whether the Chilean system of making a private pension fund

responsible for a minimum actual yield linked to the industry average may be introduced in

India. Any shortfall could be made up from a 'contingency reserve' especially set up for; this

purpose. In Chile, initially, there was a requirement of maintaining a cash (or investment)

reserve of 5 per cent of the AFP' s value, which was subsequently lowered to I per cent. VIII

Brief Concluding Remarks The challenges facing India in its endeavour to provide old-age

benefits to its large number of citizens are immense. At present most workers are outside the

ambit of the EPFMP Act, 1952. Given the present level of economic development it would be

difficult for the state to provide pensions to all its citizens from resources available to the

Exchequer. In fact, even a minimum state provided pension without contributions cannot be

contemplated given the parlous state of India's public finances and the future demographic

profile of the country. Therefore, a start needs to be made to broaden the 'umbrella' based on

individual capitalised accounts, which is run overwhelmingly by the private sector.20 In a

manner of speaking, pension products need to be taken to the 'masses', but on a commercial

basis. The concomitant development in the capital markets will be a most helpful by-product

of this change. A fairly radical change in existing legislation and regulatory framework

(including investment norms) will be undoubtedly required. The challenge is to ensure that a

modern structure that facilitates efficient functioning of the sector evolves rapidly.21Although

considerable work is needed there is really no need to reinvent the wheel since international

experience can be deployed and suitably modified for Indian requirements relatively quickly.

19 Id. 20 R Duggal, Need to Universalise Social Security, 41(32) ECONOMIC AND POLITICAL WEEKLY 3496, (2006).21 Id.

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CHAPTER 3- RECENT IMPORTANT AMENDMENTS TO THE SCHEMES UNDER

EPF ACT

“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, 2014.22

Summary of important amendments made to 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/-.

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.23

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.”

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.24

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

22 S. Sakthivel et al, Unorganised Sector Workforce in India: Trends, Patterns and Social Security Coverage, 41(21) ECONOMIC AND POLITICAL WEEKLY, 2107 (2006).23 Ranade, supra note 18, at 205. 24 Id.

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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.25

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.

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/-).

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.

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. ”

The said proviso has now been omitted. Accordingly, the options to contribute to Pension

Fund on a monthly pay higher than Rs. 15,000/- is no longer available to new resident

members.

25 Bose and K.D. Gangrade, THE AGEING IN INDIA: PROBLEMS AND POTENTIALITIES (Abhinav Publications: New Delhi, 1988).

15

“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:

(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);

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/-.

(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.

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.

7. Furthermore, 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:

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

(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

(c) 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;

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- 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.

Note 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

(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.

“(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.

(c) 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 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.

Object of the amendments and 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 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.26

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/-

26 THE ECONOMICS OF PENSION PRINCIPLES, POLICIES AND INTERNATIONAL EXPERIENCE (Salvador Valdes Prieto Ed., Cambridge University Press: Cambridge, 1997).

17

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.27

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.28

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. ”

27 Id. 28 Id.

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CHAPTER 4: THE TWO DIFFERENT PERSPECTIVES

I had the opportunity of taking telephonic interviews of two individuals who play a pivotal

role in the scheme of the EPF Act. Both are serving members of the Central Board of

Trustees which is the statutory body set up by the Central Government under S. 5A of the

EPF Act. The main functions of the board are the administration of funds, the delegation of

administration and financial powers for the efficient implementation of the schemes, the

appointment of officers and staff, the maintenance of accounts of income and expenditure and

the submission of audited accounts and Annual report on performance of the Organization to

the Government.29 The first was Mr. Ashok Singh the employee’s representative at the Board

and the second was Mr. Rajinder Singh Maker, the representative of the employers at the

Board.30 I specifically selected these two individuals specifically and put similar questions to

them in order to get the perspective of both the employers as well as the employees on certain

aspects of the implementation of the EPF Act.

Surprisingly the responses of the two representatives were not very different from each other

showing that there may in fact be consensus on the principle of provident fund in India and

the non-implementation is only on ground. For instance one of the questions put to the two

representatives was what in their opinion was the most important social factor that should be

taken into consideration while deciding the future policies under the Act. Both of them,

without prompting, agreed that the break-up of the joint family system where the younger

generation took care of the older generation and hence decreased their dependence on

pension schemes was the most important factor. No longer is this the trend and hence many

old people are left to their own resources to fend for themselves instead of having an entire

family structure. Hence the importance of increasing the coverage and inclusivity of the

pension and EPF schemes was of utmost importance, more now than in the past.

Another concern that the both of them raised was with respect to the lack of security for the

unorganised sector and how that was harming the social security and social welfare system of

the entire nation given the fact that those most in need of support were unable to receive it

which made them the most vulnerable groups in the society. This concern has also been

reflected throughout the course of this paper by the author who is of the opinion that bringing

29 Functions- Central Board of Trustees, available at http://www.epfindia.com/site_en/FunctionCBT.php (Last visited on Dec. 2, 2015). 30 Contact details available in public domain on the Official Website of Employee’s Provident Fund Organization India, available at http://www.epfindia.com/site_en/CBT_EC_MEMBERS.php?id=CBT.

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the unorganised sector under the ambit of the act or another tailor made social security

system is the need of the hour.

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CONCLUSION

The EPF Act’s recent amendments have definitely made the functioning of the EPF system

much smoother and more accesssible to those under its purview. The increased digitization

has also served to minimize bureaucratic inefficiencies and minimize corruption. It is also

now easier for someone under the scheme to know their rights under the act.

However this fails to address the larger issue of social security for all. The EPF Act benefits a

very small segment of the population with no concern for the huge swathes of unorganised

labour that dominates the labour force in the country. A response to this argument may be

that the EPF is designed for a specific purpose and does its job well in that regard. The

logical corollary to this would be a new Act for unorganised labour. However this is an

extremely disingenuous argument. For if the EPF already has a large bureaucratic machinery

in place with established systems of functioning would it not be simpler to just expand and

modify it to meet the needs of the unorganised sectors rather than creating a whole new

organisation for the same. With the increased coverage of Aadhar and more connectivity to

villages, it is certainly possible to have an electronic system for the same within the scope of

the EPF system. Clearly the only thing missing is political will. This is an extremely sad

scenario for the state of social security in our country.

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BIBLIOGRAPHY

TELEPHONIC INTERVIEWS

1. Mr. Ashok Singh, Employee’s Representative, Central Board of Trustees, EPF Act.

2. Mr. Rajinder Singh Maker, Employers, Representative, Board of Trustees, EPF Act.

WORKING PAPERS

1. Poirson, Hélène, Financial Market Implications of India's Pension Reform (April

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EXPERIENCE (Salvador Valdes Prieto Ed., Cambridge University Press: Cambridge,

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4. Bose and K.D. Gangrade, THE AGEING IN INDIA: PROBLEMS AND POTENTIALITIES

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7. Mukul G. Asher, Amarendu Nandy, Reforming provident and pension fund regulation

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