Home > Legal, Uncategorized > Employees Provident Fund and Limits of employer’s & employee’s contribution

Employees Provident Fund and Limits of employer’s & employee’s contribution

Few days back, I have been discussing with some collegues regarding the Provident Fund contribution by Employee & Employer. During the course of discussions, it is observed that there is a limit to the employer’s contribution and it does not exceeds Rs. 6,500/-. When we wanted to get into more details and I asked for specific legal provisions in respect of limited liability of employer (as I was under the impression that the employee & employer contributes equally and there is no limit as to the same), we could not have found the said provisions very easily. Even the internet searches took us a long time but no specific results are reached. Lately, we decided to dwelt the issue and then I decided to get into more research as to the issue and to compile specific provisions. The below details are result thereof and I hope it will solve the query as to the legal provisions under which the employer’s contribution is limited and may not be equal in case certain employees.

 

Please note that here I am trying to find out the legal provisions resulting into limiting the liability of employer’s contribution towards PF and thus the other provisions of the Act are not discussed here.

 

Employees Provident Funds & Miscellaneous Provisions Act, 1952

 

The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (herein after referred to as “the EPF Act”) is a very important Social Security Legislation enacted to provide with a kind of social security to the industrial workers. As observed by the Supreme Court in Andhra University v. R.P.F.C. 1985 (51) FLR 605 (SC), It is a beneficent piece of social welfare legislation aimed at promoting and securing the well-being of the employees.

 

The security, however, differs from the security provided to them under the Workmen’s Compensation Act or the Employees’ State Insurance Act. The EPF Act mainly provides for Provident Fund, Superannuation Pension, Invalidation Pension, Family Pension and Deposit Linked Insurance, which are, primarily, retirement or old age benefits. Though the provision for terminal benefit of restricted nature was made in the Industrial Disputes Act, 1947 in the form of payment of retrenchment compensation etc,, but the same benefit was not available to a worker on retirement, on reaching the age of superannuation or voluntary retirement. Keeping in mind such benefits and so as to extend the terminal benefits to retiring employees, whether on reaching superannuation age or in case of voluntary retirement, the EPF Act was legislated.

 

Employees covered under the Act enjoy the benefit of Social Security in the form of an un-attachable and un-withdrawable (except in severely restricted circumstances like buying house, marriage, education, etc.) financial nest egg to which employees and employers contribute equally throughout the covered persons’ employment.

 

Purpose of the Act

 

The preamble to the Act states that this is an Act to provide for the institution of: -

(i) Provident Funds

(ii) Pension Fund and

(iii) Deposit Linked Insurance Fund for employees in factories and other establishments.

 

Applicability:

 

The Act applies to the whole of India except the State of Jammu and Kashmir.

 

 As per Section 1 of the Act, the Act applies to:

(i) every establishment which is a factory engaged in any industry specified in Schedule I and in which 20 or more persons are employed, and

(ii) any establishment employing 20 or more persons or class of such establishments which the Central Government may, by notification in the official gazette specify.

 

It is also provided in the Act that the Central Government may, after giving not less than two months’ notice of its intention so to do, by notification in the Official Gazette, apply the provisions of this Act to any establishment employing such number of persons less than twenty as may be specified in the notification.

 

Also, any establishment employing even less than 20 persons can be covered voluntarily under section 1(4) of the Act.

 

As per provisions contained in Section 1(5) of the Act, an establishment to which the Act applies shall continue to be governed by the Act notwithstanding that the number of persons employed therein at any time falls below twenty.

 

Exemptions:

 

As per Section 16 of the Act, the provisions of the Act do not apply to the following: -

(i) any establishment registered under the Co-operative Societies Act 1912 or under any other law for the time being in force in any State relating to co-operative societies, employing less than 50 persons and working without the aid of power.

(ii) Any establishment belonging to or under the control of the Central or State Government and whose employees are entitled to the benefit of contributory provident fund or old age pension in accordance with any scheme framed by such government.

(iii) Any other establishment set up under any Central, Provincial or State Act and whose employees are entitled to the benefit of contributory provident fund or old age pension in accordance with any scheme framed under that Act.

(iv) The P.F. Scheme is not applicable to tea factories in the State of Assam.

 

Eligibility

 

Section 2(f) of the Act defines an “employee” to mean any employee 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 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 an establishment

(ii) engaged as an apprentice, not being an apprentice engaged under the Apprentices Act 1961, or under the standing orders of the establishment.

 

# Accordingly, personal or domestic servants are not employees under the Act.

# Contractor’s Employees: It has been held by the court in Enfield India v RPFC 2000 (85) FLR 519 (Mad) a person doing work of the principal employer, even though employed by a contractor is also an employee covered by the definition.

# Trainees: It has been decided by the courts that trainees are not employees and are not covered by the EPF Act. {Sri Rama Vilas Service Ltd. V RPFC 2000 –I-LLJ-709(Mad) and Gandhi Vinita Ashram v PFC 1996 (1) CLR 1140 (P&H).}

 

As per Section 2 (f) of the Act “Excluded Employee” mean an employee:

(i) who having been a member of the fund, withdrew the full amount of his accumulations on retirement or emigration or

(ii) whose pay at the time he is otherwise entitled to become a member of the fund exceeds Rs. 6,500.00 p.m.

 

Employees Required to Join the Fund: As per Para 26 of the EPF Scheme, Every employee employed in or in connection with the work of the factory or other establishment to which the EPF Scheme applies except an excluded employee i.e. drawing a salary exceeding Rs. 6,500.00 p.m. {Para 26(1)}, is required to join the fund.

 

Contributions

 

Under Section 6 of the Act, read with notification dated 9th April 1997 and Para 29 of the EPF Scheme, the rate of contribution under the Act is 12%.

 

As per Section 6, the contribution which shall be paid by the employer to the Fund shall be ten percent of the basic wages, dearness allowance and retaining allowance, if any, for the time being payable to each of the employees, whether employed by him directly or by or through a contractor, and the employee’s contribution shall be equal to the contribution payable by the employer in respect of him.

 

It further provides that if any employee so desires, the employee’s contribution may be an amount exceeding ten percent of his basic wages, dearness allowance and retaining allowance, if any, subject to the condition that the employer shall not be under an obligation to pay any contribution over and above his contribution payable under this section.

 

It is further provided therein that the Central Government may, by Gazette Notification, specify in respect to any establishment or class of establishments, that the rate of contribution shall be 12% instead of 10%.

Thus, the Employer has to deposit 12% (or 10%, as the case may be) of the basic wages, dearness allowance and retaining allowance (if any), on his part and an equivalent amount on behalf of the employee, which is to be recovered from the employee’ salary (para 32 of EPF Scheme).

 

Important points to be considered for the purposes of this Provision:

 

# For this section ‘dearness allowance’ shall be deemed to include the cash value of any food concession allowed to the employee. The ‘retaining allowance’ means an allowance payable for the time being to an employee for retaining his services, when the establishment is not working.

# “Basic Wage” is defined under Section 2(b) of the Act as to mean emoluments which are earned by an employee while on duty or on leave or on holidays with wages. It includes cash value of food concession, dearness allowance and any presents made by the employer.

# Encashment of leave does not fall under dearness allowance or retaining allowance or basic wages and is not to be considered in computing the amount to be deposited under the EPF Act. {Hindustan Lever Employees Union v RPFC 1995 (71) FLR 46 (Bom)}.

 

Employee’s Contribution:

 

As per the provisions of the Act, in case any employee so desires, his contribution may be an amount exceeding the 12% (or 10% as the case may be) of his basic wages, dearness allowance and retaining allowance, if any, but in that case the employer shall not be under an obligation to pay any contribution over and above his contribution payable under the Act i.e. 12% (or 10%, as the case may be) of the employee’s basic wages, DA & retaining allowance. Thus, it may be said that there is no upper limit for contribution by an employee towards the E.P.F.

 

Employer’s Contribution:

 

As per Para 26-A of the Scheme, where the monthly pay of an employee exceeds Rs. 6,500/- (Rupees Six Thousand Five Hundred only), the contribution payable by him, and in respect of him by the employer, shall be limited to the amounts payable on a monthly pay of six thousand five hundred rupees.

 

In view of the provisions contained in Para 29 of the Scheme, a member (i.e. an employee), if he so desires, may contribute an amount exceeding the statutory rate (i.e. 12% or 10%, as the case may be) but the employer shall not be under an obligation to pay contribution over and above his contribution payable under the Act.

 

THE EMPLOYEES’ PROVIDENT FUNDS SCHEME, 1952

 

As per Section 5 of the Act, the Central Government may, by notification in the Official Gazette, frame a scheme to be called the Employees’ Provident Fund Scheme for the establishment of provident funds under the Act for employees or for any class of employees and specify the establishments or class of establishments to which the said Scheme shall apply and there shall be established, as soon as may be after the framing of the Scheme, a Fund in accordance with the provisions of this Act and the Scheme.

 

In exercise of the said provisions, the Central Government has framed the Employees’ Provident Fund Scheme, 1952 (herein after referred to as “the Scheme”). The purpose of the Scheme was to establish provident funds for the employees covered by the Act and as such, the PF scheme is applicable to the employees of all factories and other establishments covered by the Act, except those exempted under section 17 thereof. (Para 1 of Scheme).

 

As per Para 26 of the Scheme, every employee employed in or in connection with the work of a factory or other establishment covered by the Scheme, other than an “excluded employee”, is entitled and required to become a member of the Fund from the date of joining the factory or establishment. Furthermore, an excluded employee shall, on ceasing to be such an employee, be entitled and required to become a member of the Fund from the date he ceased to be such employee.

 

The employer has to contribute 0.18% of the basic wages, D.A., retaining allowance and cash value of food concession towards inspection charges, (Para 30 (3) of the Scheme). This amount cannot be recovered from the employees.

 

The employer is required to pay administrative charges at the rate of 1.10 percent of the pay payable to the employees in respect of which provident fund contributions are payable. {Para 38 & 39}

 

Statutory rate of contribution is 12% of emoluments (basic wages, dearness allowance, cash value of food concession and retaining allowances if any,) in the case of 175 establishments. Rate of contribution shall be 10% in the case of the Brick, beedi, jute, guar gum factories, coir industry other than spinning sector as well as for establishments declared as sick undertakings by BIFR. A matching contribution is to be collected from the emoluments of the employees. Out of 12% (or 10% as the case may be) of the employer’s share of contribution, 8.33% is to be remitted towards pension fund.

THE EMPLOYEES’ PENSION SCHEME, 1995

 

The purpose of the Scheme is to provide for (1) superannuation pension, retiring pension or permanent total disablement pension to employees covered by the Employees’ Provident Funds Act, and (2) widow or widower’s pension, children pension or orphan pension payable to the beneficiaries of such employees. {Section 6-A(1)}

 

To meet the expenses for administering the Scheme, a fund called the Employees’ Pension Fund is set up and from and out of the contribution payable by the employer under section 6 of the Act a part of contribution representing 8.33 percent is credited to the Fund. The Central Government will also contribute to the Fund at the rate of 1.16 percent of the pay of the members of the Scheme.

 

It is to be noted here that in case the pay of the member exceeds Rs. 6500.00 per month, the contribution payable by the employer and the Central Government will be limited to the amount payable on his pay of Rs. 6500.00 only. {Section 6-A & Para 3}

 

It is also to be noted that if at the option of the employer and employee, contribution paid on salary exceeding Rs. 6500.00 per month, and 8.33 percent share of the employers thereof is remitted into the Pension Fund, pensionable salary shall be based on such higher salary.

 

THE EMPLOYEES’ DEPOSIT-LINKED INSURANCE SCHEME, 1976

 

The purpose of the scheme is to provide life insurance benefits to the employees of the establishments covered by the PF Act. As such the scheme is applicable to the employees of all factories and other establishments covered by the said Act. {Section 6C & Para 1}.

 

 The benefit provided under the scheme in the nature of life insurance is as follows:-

 

On the death of an employee while in service, a lumpsum insurance amount is payable to his nominee or family members, which sum shall be equal to the average balance in the account of the deceased employee in the Provident Fund during a period of 12 months immediately preceding his death. In case the average balance exceeds Rs. 35000.00 subject to a ceiling of Rs. 60000.00. {Para 22}.

 

 Under the scheme, the employee is not required to pay any contribution. The employer is, however, required to pay every month contribution at the rate of 0.5 percent of the total wages of the employees covered by the scheme. In addition to the contribution the employer has to pay administrative charges at the rate of 0.1 percent of the total wages of the employees covered by the scheme. {Section 6(C) & Para 7}.

 

 As per Para 7 of the Scheme, where the monthly pay of an employee is more than Rs. 6500.00 the contribution payable in respect of him by the employer (and the Central Government) is limited to the amounts payable on monthly pay of Rs. 6500.00 only.

Conclusion

 

From above, it is crystal clear that as per the provisions of the Act, in case any employee so desires, his contribution may be an amount exceeding the 12% (or 10% as the case may be) of his emoluments and thus it may be said that there is no upper limit for contribution by an employee towards the E.P.F. However, where the monthly pay of an employee exceeds Rs. 6,500/- (Rupees Six Thousand Five Hundred only), the contribution payable by him, and in respect of him by the employer, shall be limited to the amounts payable on a monthly pay of six thousand five hundred rupees.

 

Thus, it may be concluded that in view of the provisions contained in Para 29 of the Scheme, a member (i.e. an employee), if he so desires, may contribute an amount exceeding the statutory rate (i.e. 12% or 10%, as the case may be) but the employer shall not be under an obligation to pay contribution over and above his contribution payable under the Act.

 

 

Place: Noida

Date: 24-07-2011

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