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July 10, 2008
Employment Law: Prudent Move By The Provident Fund Authorities
On June 5, 2008, the Central Board of Trustees of the Employees’
Provident Fund Organisation (“EPFO”) in its board meeting,
approved the lowering of the threshold limit for applicability
of establishments covered under the Employees Provident Fund and
Miscellaneous Provisions Act, 1952 (the “EPF Act”). Once the
notification is issued for such amendment, establishments (to
which the EPF Act applies) having a minimum of 10 employees will
be required to contribute towards the provident fund accounts
for its eligible employees, as against the existing limit of a atleast 20 employees.
This threshold limit for coverage of establishments under the
EPF Act has been changed for the first time since 1960. Further,
in the recent times, the most significant amendment to the EPF
Act with respect to its applicability was in the year 2001, when
the monthly salary limit of the employees for coverage under the
Employees’ Provident Fund Scheme, 1952, was raised from INR
5,000 to INR 6,500. Unlike recent amendments to other labour
laws, the salary threshold under the EPF Act continues to remain
unchanged.
Background
The EPF Act is probably the most important social security
legislation in the country which was enacted by the Government
soon after the country’s independence. The EPF Act provides for
the institution of provident fund, pension fund and deposit
linked insurance fund, under its three schemes, being the
Employees’ Provident Fund Scheme, 1952, Employees’ Deposit
Linked Insurance Scheme, 1976 and the Employees’ Pension Scheme,
1995. The applicability of the EPF Act was recently (2006)
extended to the Information Technology.
The EPF Act is applicable to factories and other establishments
specified in the schedule to the EPF Act and as may be notified
by the government. Prior to the amendment, establishments with
less than 20 employees were not under an obligation to make
contributions for their employees under the EPF Act, although
they could do so, on a voluntary basis.
Implications
It appears that the intention behind extending the coverage of
the EPF Act to smaller establishments is to reduce the gap
between the number of employees currently covered under the EPF
Act and the total workforce in the country. Currently,
approximately 471,678 establishments and around 44.4 million
employees are covered under the EPF Act1 , which is in addition
to employees covered under private trusts set up by their
employers. With this revised applicability, a greater number of organisations will be covered.
The justification for excluding smaller establishments from the
purview of the EPF Act was that such establishments would be
required to manage compliances under the EPF Act, which may have
been cumbersome in view of the size of their operations. One of
the contentions for the decision could be that it is possible to
maintain some of the records virtually and hence this should no
longer be a ground to exempt smaller establishments from the
purview of the EPF Act. The modernization program by the EPFO,
‘reinventing EPF India’, which was initiated in the year 2000
completed a milestone in the year 2006 with the project being
fully implemented in the first instance in six pilot offices of
the EPFO2.
Employees of smaller establishments would definitely welcome the
notification of the amendment in view of the high interest rate.
However, from the smaller establishments’ perspective, the
change in law may turn out to be expensive as such
establishments would need to revise their compensation structure
to include provident fund contributions for eligible employees.
The amendment to the EPF Act brings it in line with two other
beneficial legislations in India, being the Employees’ State
Insurance Act, 1948 (“ESI Act”), which is applicable
inter alia
to factories with a minimum of 10 employees, and the Payment of
Gratuity Act, 1972 (“POGA”), which is applicable to all
establishments having a minimum of 10 employees. This would help
to a certain extent in unifying the social security efforts of
the Government of India.
1http://www.epfindia.nic.in/operational_stat.htm
2http://pib.nic.in/release/rel_print_page1.asp?relid=23834
Sources:
www.economictimes.com;
www.business-standard.com
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