A BRIEF NOTES ON THE IMPACT OF RECENT P.F. CEILING ENHANCEMENT

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1 A BRIEF NOTES ON THE IMPACT OF RECENT P.F. CEILING ENHANCEMENT By this time all of you would have read the increase in the EPF ceiling limit finally confirmed through Gazette Extraordinary Notification made on 28th Aug 14 which is effective from 01st S ept 14. This amendment has several impacts apart from increase in contribution. Key highlights and impact analysis of the amendment are summarized in trail: A. Salary ceiling limit for EPF coverage has been increased from Rs.6,500/ to Rs.15,000/ p.m. B. Salary means only Basic + DA + VDA + Retaining Allowance + Cash value of any food concession + any other allowance paid in cash & not defined. C. Minimum Employee s Pension w.e.f., 01st Sept 14 will be Rs.1,000/ p.m D. Salary ceiling limit for Employee s Pension will be Rs.15,000/ p.m. Hitherto it was Rs.6,500/ E. This means 8.33% of on Rs.15,000/ basic i.e. Rs.1250/ p.m will be diverted to pension fund. Hither to it was Rs.541/ only on 8.33% F. Those who want to contribute above Rs.15000/- for pension fund will have to shell out 1.16% additional contribution on the amount in excess of Rs.15,000/ from employees share & give declaration (both employer & employee) to that effect within 06 months from the date of this notification failing which any additional contribution made above Rs.15,000/ to pension fund would be diverted to EPF fund & will be given the interest as declared from time to time. G. Employer in addition to 12% of Basic, now will have to contribute 0.50% of Rs.15,000/ to EDLI A/C, 1.10% on Rs.15,000/ as administration expenses on EPF A/C & 0.01% of Rs.15,000/ as administration expenses for EDLI A/C. H. Minimum Widow Pension w.e.f., from 01st Sept 14 will be Rs.1,000/ p.m I. For dependent children with widow, the Children Pension will be Rs.250/ p.m J. If the deceased employee is not survived by widow but by the dependent children Rs.750/ p.m will bethe children pension. K. Eligibility for pension: 10 years of service under pension scheme and on attaining the age of 58years both condition have to be fulfilled.

2 L. If the service is below 10 years of service & has not attained the age of 58 years, can withdraw the pension amount or obtain certificate to that effect & resume the count of service in future, if the employee joins for the employment service covered under EPF&MP Act, M. Pensionable salary up to 31st Aug 14 will be Rs.6,500/ thereafter it will be Rs.15,000/ till further amendment. N. If the Employee s Pension contribution is restricted to Rs.15,000/ then the maximum pension at the age of 58 years shall not be more than Rs.15,000/ p.m as on date. Hitherto it was Rs.6,500/ p.m O. Pension calculation: (Pensionable salary * Pensionable Service)/70 P. 20% increase in the EDLI claim benefits amount. At present the maximum benefit payable under EDLI is Rs.130,000/ & the increase of 20% would result in Rs.146,000/ as maximum benefit. Q. There will be no contribution to pension fund for an International Worker assigned to India w.e.f., 01 st Sept 14 if their salary is above Rs.15000/ p.m. This means entire contribution both employer & employees will be apportioned to EPF A/c. R. Any International Worker who is an existing member of the Pension Scheme as on 01st Sept 14, 8.33% of the employers share would continue to be contributed to Pension Account. This amendment will have marginal cost escalation on Employers to the extent as mentioned in point G above w.r.t., Permanent Employees as well as for contingent employees whose basic salary is more than Rs.6500/. It may be noted that the last amendment w.r.t., ceiling was on 01st June It is after 13 years the ceiling limit is enhanced, rightly so as economic & business dynamics have changed greatly in the past 13 years!!! Regarding EDLI benefit. Apart from this, there are errors in paragraphs F, L, M & N. 1. In Para F, it is stated that Those who want to contribute above Rs.15,000/ for pension fund will have to shell out 1.16% additional contribution on the amount in excess of Rs.15,000/ from employees share & give declaration (both employer & employee) to that effect within 06 months from the date of this notification failing which any additional contribution made above Rs.15,000/ to pension fund would be diverted to EPF fund & will be given the interest as declared from time to time." EPFO has stated that from on wards there will not be any provision to opt to contribute beyond ceiling limit to EPS. Those who already opted this provision before will only come under the purview of this clause.

3 2. As per Para L," If the service is below 10 years of service & has not attained the age of 58 years, can withdraw the pension amount or obtain certificate to that effect & resume the count of service in future, if the employee joins for the employment service covered under EPF&MP Act,1952". There is no significance on age to get withdrawal benefit. If the service is 10 years or more, member will be entitled to get pension, other wise withdrawal benefit can be availed regardless of age. 3.As per Para M, "Pensionable salary up to 31st Aug 14 will be Rs.6,500/ thereafter it will be Rs.15,000/ till further amendment." After 31st Aug 2014 pensionable salary will be in between 6500 and till July When a member complete 60 months (i.e Sept 2014 to Aug 2019) after , then only pensionable salary will be As per Para N, "If the Employee s Pension contribution is restricted to Rs.15,000/ then the maximum pension at the age of 58 years shall not be more than Rs.15,000/ p.m as on date. Hitherto it was Rs.6,500/ p.m." The cap is not on pension amount but pensionable salary. For those contribute on ceiling salary of 15000, there should be 68 years' service to get a pension of This is impossible. All labour laws are supposed to be the simplest possible so that any worker could understand them but, in reality, it is the other way round. Even the experts - be it lawyers, trade unionists or HR Executives - all find it to mind boggling, complex and entangling like cobwebs. The Employees' Provident Funds Act and the Schemes are not exception for understanding its implications. For instance, who is an employee to be covered under the Act and the Scheme is not so simple as stated since it requires a study in depth not only the Act and the Scheme but the judicial interpretations also. On increase in the salary-cap for coverage of an employee from Rs.6,500 to Rs.15,000 per month w.e.f. 1st September, 2014, over 50 lakh more employees (in addition to as on 31st March, 2014) will be covered under the Act and the Scheme. Who are the employees to be covered and whether they remain covered if their wage/salary increases Rs.15,000 is mind boggling question. There are common instances that some employers discontinue the membership of an employee when his salary increases the wage-cap. This is a mistaken view and such employers have not only to pay the employees share of contributions but damages also. Also, when an employee who was not be covered under the Act and the Scheme, is covered under the Act, the EPF authorities will not easily accede to bonafide correction what to talk of refund of contributions as wrongly deposited.

4 Section 2(f) of the Employees Provident Funds & Miscellaneous Provisions Act reads as under:- 2(f) Employee means any person 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, his 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 the establishment; (ii) engaged as an apprentice, not being an apprentice engaged under the Apprentices Act, 1961, or under the standing orders of the establishment. The above definition is only illustrative but not exhaustive since it has to be read in conjunction with the Employees' Provident Fund Scheme with its clause 2(f) in addition to paragraphs 26, 33, 81, 82 and 83. In view of the above, any person, irrespective of his/her age, who is appointed in an establishment as covered by the Employees Provident Funds & MP Act on the salary below Rs.15,000 per month, is liable to be covered under the Employees Provident Funds Scheme on the first day of his/her joining. However, when the wage or salary of a newly appointed employee is above the prescribed ceiling i.e. Rs.15,000 per month and who had not been the member of the Employees Provident Funds earlier, he will not be obliged for the membership of Provident Funds and the Scheme since he will be termed as an excluded employee. Be it clarified that once an employee is enrolled as a member of the Fund, he will continue to remain member atleast upto his salary cap (prescribed maximum) for the subsequent period of employment. For instance, if an employee is drawing Rs.14,500 per month, he will be member of the fund. Assuming that his salary is increased to Rs.16,000 per month, the employer will be under an obligation to continue him as a member of the Fund atleast upto Rs.15,000 per month. If an employee, as covered under the Act, continues after his/her retirement on attaining the 55 or 58 years and has not settled his dues, the EPF contributions will be payable. EMPLOYEE ENGAGED THROUGH CONTRACTOR The amended Act 28 of 1963 in section 2(f) categorically stipulates that the employees engaged by or through the contractor will be covered under the Act. In one case, Rajasthan High Court has held that the employees of the contractors engaged for loading and unloading in respect of transport contract entered into the work of petitioners establishment would be covered under the Employees Provident Funds & Misc. Provisions Act.1 However, the employees of the contractors supplying products of an establishment will not attract the applicability of the Act.2 The employees engaged through the contractor of a cycle stand of the hospital will also be covered under the Act.3

5 1. D.C.M. Ltd. vs. Regional Provident Fund Commissioner, 1998 LLR Karachi Bakery vs. Regional Provident Fund Commissioner, Hyderabad, 1991 LLR 24 (AP C). 3. Santokha Durlabhji Memorial Hospital, Jaipur vs. Asstt. Provident Fund Commissioner, Jaipur, 2001 LLR 68 (Raj. HC). PIECE-RATED EMPLOYEE The petitioner engaged in manufacture of eatables and selling them at the counter has been engaging needy women to manufacture the items and were paid on piece rate basis hence they are not to be covered under the Act. Shree Kutchi Visha Oshwal Mahila Mandal vs. Union of India, 1992 LLR 584 (Bom HC). DRIVERS/CONDUCTORS OF SCHOOL BUSES THROUGH CONTRACTOR A school, covered under the Act, will not be liable for payment of contributions of the employees such as drivers, conductors or the cleaners as engaged by the transport contractor for providing transportation to the students and the staff since the Management has been paying for each trip of the buses and did not have any casual or even remote connection over the employees as engaged by the contractor who were not working at the premises. Springdales School vs. Regional Provident Fund Commissioner, 2006 LLR 47 (Del HC). CASUAL EMPLOYEE Employing 'casual workers' month after month and year after year cannot be due to some abnormal contingency or emergency and hence, it is not possible to hold that the provisions of the Act do not apply to the establishment.1 The Provident Funds Act, does not distinguish between regular employee or casual or those engaged through the contractor.2 1. M/s. Autocrat Tours vs. Regional Provident Fund Commissioner, 2004 (102) FLR 268 : 2004 LLR 780 : 2004 LIC 2249 (Del. HC). 2. Jaggi & Co. vs. Presiding Officer, Employees' Provident Fund Appellate Tribunal, 2008 LLR 126 (Del. HC)

6 MANAGING DIRECTOR/DIRECTOR Managing Director or the Director of a Company cannot be an employee to be covered under the Employees' Provident Funds & Misc. Provisions Act. Sanatan Ghosh vs. Regional Provident Fund Commissioner, 1990 LLR 742 (Cal HC). DIRECTOR OF A COMPANY The Patna High Court has held that the directors are not 'employees' even remuneration.1 if they get However, the directors of a company working on part- time basis discharging extra duties apart from Director, will be employees under Employees' Provident Funds & Miscellaneous Provisions Act as held by Calcutta Highi Court.2 1. Union of India vs. Patna Tyre House Pvt. Ltd., 2004 (101) FLR 666 : 2004 (1) LIC 727 : 2004 (3) LLN 397 (Pat. HC). 2. Tin Printers (Pvt.) Ltd vs. Regional Provident Fund Commissioner, West Bengal,, 2000 LLR 1175 (Cal. HC). PARTNER OF A FIRM A partner of the firm cannot be construed as an employee. 1 However, the partners of an establishment receiving salaries will not be included as employees for its coverage under EPF & MP Act Prakash D. Shah and others vs. Union of India, through the Ministry of Finance and another, 2003 LIC 3631 : 2004 (100) FLR 856 : 2004(1) LLJ 943 : 2004 LLR 218 : 2004 (1) LLN 987 : 2004 (1) CLR 68 : 2004 (105) FJR 844 (Bom. HC) 2. Om Roller Flour Mills vs. Union of India, 2002 LIC 1229 : 2002 LLR 683 : 2002 LIC 1229 : 2002 (IV) LLN 127 : 2002-III LLJ 228 (Cal. HC) SONS OF PROPRIETOR In one case, three sons of the proprietor who were in the employment and were being paid wages, it has been held that they will be deemed as 'employees' and liable to be covered under the Act. Goverdhanlal Purohit vs. R.P.F. Commissioner, 1993 LLR 575 (P&H Hc)

7 HOME WORKERS Home workers as covered under the Beedi Cigar Workers (Conditions of Employment) Act will be covered under the Act.1 The Madras High Court has also held that Weavers/Artisans working at home will also be covered by EPF & MP Act as employees.2 1. Baji Beedi Factory vs. The Appellate Authority, 1998 LLR 23 (Kant HC). 2. Padiyur Sarvodaya Sangh vs. Union of India, New Delhi, 1999 LLR 551 (Mad HC). DRIVERS OF EXECUTIVE WHEN COVERED The drivers, as engaged by the Managers of the Company whose wages are reimbursed by the Company through the Managers, will be covered under the Employees' Provident Funds & Miscellaneous Provisions Act, since the Company has been providing uniforms, foot wears, monsoon equipment, winter clothing and even overtime when their services were required by their Managers beyond their duty hours.1 In another case the Karnataka High Court has held that the drivers, engaged by the executives, will not be treated as employees of the Company for coverage under Provident Fund Act.2 1. BASF India Ltd. vs. M. Gurusamy, Regional Provident Fund Commissioner, Maharashtra and Goa, (2004) 2 Mah. LJ 164 : 2004 LLR 463 (Bom. HC). 2. Employees' Provident Fund Organisation vs. L&T Komatsu Ltd., 2009 LLR 1274 (Karn. HC). RETIRED GOVERNMENT EMPLOYEE A retired employee from government services who has not been a member of Employees Provident Fund will be covered as a member on joining an establishment covered by the Act but he will not be enrolled as a member of Employees Pension Scheme. Hence a retired employee from Railways cannot be treated as excluded employee. Reason:- The Employees Provident Fund Act is neither applicable upon the government nor railway employees. Central Provident Fund Commissioner vs. Modern Transportation Consultancy Service (Private) Ltd., 2009 LLR (SN) 324 (Cal. HC) APPRENTICES Apprentices and trainees, engaged under the Apprentices Act or under the certified standing orders, are not covered. However, when the persons, engaged as apprentices but required to do work of regular employees, are to be covered under Provident Funds Act. N.E.P.C. Textile Ltd., Rep. by its Director, Coimbatore vs.asstt. P.F. Commissioner, Coimbatore, 2007 LLR 535 (Mad. HC).

8 EMPLOYEES IN NEWSPAPER/CINE ESTABLISHMENT The employees of newspaper industry have always been treated as a class apart and as such not treating them as excluded employees under the Employees Provident Funds and Miscellaneous Provisions Act and the Scheme even when they are getting ages/salary more than the prescribed cap for coverage. Paragraph of the Employees Provident Fund Scheme also contains special provisions in the case of cine workers. Express Publications (Madurai) Ltd. vs. Union of India, 2004 LLR (SN) 479 (SC) INTERNATIONAL WORKER The amendments, as published in the Gazette of India No. 538, dated October 1, 2008, have been made relating to Employees Provident Fund by introducing a new category of employees known as an International Worker who will be required to join these schemes with effect from 1st November, 2008 irrespective of wage cap. The employees, likely to be affected or benefited, would include expatriates (foreign citizens) working in India and even Indian employees deputed to work abroad. The notification exempts international workers from those countries with which India has signed Social Security Agreements, commonly known as Totalisation Agreements, and who have been contributing to their home country social security schemes. As on date, India has reciprocal Social Security Agreement with Belgium, Switzerland, France, Korea, Hungary, Germany, Luxembourg, Denmark, Netherlands, Finland and Sweden. CONSULTING DOCTORS Consulting doctors providing services for some hours or so to different establishments without control over them by that establishment would not come under the category of employees coverable under section 2(f) of the Act. Employees Provident Fund Organisation vs. Employees Provident Fund Appellate Tribunal, 2012 LLR 165 (Ker. HC). DEPOSIT COLLECTORS The deposit collectors employed by the employer, performing under control of the employer/bank, would be employees of the employer as per section 2(f) of the Act despite their being free to regulate their own hours of work. South Malabar Gramin Bank vs. Regional Provident Fund Commissioner, 2013 LLR 470 (Karn. HC).