Epf act important provisions

1. THE EMPLOYEES’ PROVIDENT FUND AND
MISCELLANEOUS PROVISIONS ACT, 1952
Prepared By:
Name:Chiranjeev Sanyal
Designation: MT(HR)

2. “basic wages” means all emoluments which are earned by an
employee while on duty or on leave or on holidays with wages in
either case in accordance with the terms of the contract of
employment and which are paid or payable in cash to him, but
does not include- (i) the cash value of any food concession; (ii)
any dearness allowance that is to say, all cash payments by
whatever name called paid to an employee on account of a rise
in the cost of living, house-rent allowance, overtime allowance,
bonus, commission or any other similar allowance payable to the
employee in respect of his employment or of work done in such
employment; (iii) any presents made by the employer;
BASIC WAGES- THE MOST IMPORTANT DEFINITION
TA, DA, HRA , GIFTS NOT
PART OF BASIC WAGES

3. Definition of an employee
• 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 (52 of 1961) or under the standing orders of
the establishment;
• HR NOTE: All employees irrespective of their nature of job contract
are covered under the epf act. Only apprentices having a proper
contract of apprenticeship are not covered under the act.

4. India: The Basic Wages Conundrum Under The EPF
Act
• The definition of 'basic wages' under the Act and the salary
components to be accounted for when determining such basic wages
for the purposes of provident fund contributions has long been the
subject matter of debate. While various stakeholders have taken the
view that any special allowances (in addition to those specifically
excluded) payable to an employee should not form part of an
employee's basic wages, the Employees' Provident Fund Organisation
(EPFO) and various courts of law have adopted contradictory
approaches.

5. Basic Wages Conundrum Contd.
By way of a circular dated 20 November 2012 (Ref: 7(1)2012/RCs Review Meeting/345) (First
Circular), the EPFO clarified that all allowances which are ordinarily, necessarily, and uniformly
paid to employees are to be treated as a part of the basic wages. The First Circular stated that all
allowances such as conveyance, special allowance, etc., are to be treated as a part of basic wages
since these are paid ordinarily, necessarily, and uniformly to employees. Therefore, barring the
specific exclusions set out under Section 2(b) of the Act, all additional allowances payable to an
employee were to be treated as part of the 'basic wage' component.
The notification of the First Circular was met with severe resistance from employers and
employees alike since it had a direct impact on an employee's net take-home salary. Owing to
mounting pressure, the EPFO placed the First Circular on abeyance until further orders by way of
circular dated 18 December 2012 (Ref: 7(1)2012/RCs Review Meeting/21224) (Second Circular).
Despite such abeyance, various courts of law continued to take contradicting views while
analysing the components of basic wages for the purposes of determining provident fund
contributions.

6. Whirlpool of India Limited v Regional Provident
Fund Commissioner
• In the matter of Whirlpool of India Limited v Regional Provident Fund
Commissioner, a single bench of the High Court of Delhi held that
'canteen allowance' was very much a part of an employee's basic
wages. It observed that the use of the words 'any other similar
allowances' in the definition of basic wages provided under the Act,
was to be read in conjunction with the word 'commission'. Hence,
canteen allowances would not fall under the gamut of specific
exemptions listed under Section 2(b) of the Act.

7. Group 4 Securities Guarding Limited v Regional
Provident Fund Commissioner
• In analysing the permissibility of an employer to structure an employee's
wages under various components, a division bench of the High Court of
Karnataka in the case of Group 4 Securities Guarding Limited v Regional
Provident Fund Commissioner held that: "... any agreement entered into
between the employer and its employees for splitting of the amount
payable by the employer to its employees for the service rendered by them,
cannot take away the power of the Commissioner under Section 7A of the
Act to look into the nature of the contract entered into between the
employer and its employees and decide that splitting up of the pay payable
to the employees under several heads is only subterfuge to avoid payment
of contribution by the employer to the provident fund. It was open to the
Commissioner to lift the veil and read between the lines to find out the pay
structure fixed by the employer to its employees and to decide the question
whether the splitting up of the pay has been made only as a subterfuge to
avoid its contribution to the provident fund."

8. CONTRIBUTIONS
Employees’ Provident Funds
Scheme, 1952
12% Employee contribution +
3.67% employer contribution +
0.85% admin charges
Employees’ Deposit-Linked
Insurance Scheme, 1976 (EDLI) and
0.5% employer contribution +
0.01% admin charges
Employees’ Pension Scheme, 1995
(EPS) (Earlier the Employees’
Family Pension Scheme, 1971
8.33% employer contribution. No
admin charges

9. According to the EPF withdrawal rules, you can get back your EPF money only under three
situations—after the retirement age (which has been extended from 55 to 58), unemployed
for more than two months, or death before retirement.
EPF also offers the nomination facility, that is, an employee can nominate his mother, father,
spouse or children to receive the money in the event of the death of the employee. However,
an employee cannot nominate his brother or sister to take their EPF money.
The EPF withdrawal amount is tax free only if you get it after retirement or have been working
continuously for five year. However, you will be taxed if you withdraw your EPF money before
completing five years of continuous service and if the amount is above Rs 30,000.
There are special provisions for women who have subscribed under EPF. Women who quit their job
for getting married, or during pregnancy or childbirth will not have to wait for two months to
withdraw and can do so immediately.
EPF WITHDRAWL NORMS

10. EDLI-LATEST DEVELOPMENTS
But in Sep 2015, the EPFO announced increase in the maximum amount assured under its Employees Deposit
Linked Insurance Scheme (EDLI) to Rs 7.8 lakh from the existing Rs 3.6 lakh. The claim amount of the EDLI is
decided by the last drawn salary of the employee.
The claim amount would be 30 times the salary.For this calculation salary is basic pay plus DA or Dearness
Allowance. The upper limit of wage for the EDLI is Rs15,000.
Along with this, the bonus of Rs 1.5 lakh is also given.
Thus, the maximum EDLI claim amount would be Rs 6 lakh [(30 x15,000) + 1,50,000].
The condition of continuous employment of one year under current employer before being eligible for
insurance benefits was also removed.

11. Alternatives of EDLI
• An employer can opt out of EDLI but he has to go for group term insurance
cover to all the employees and the benefit of such group term insurance
scheme should be equal to or better than the EDLI. The EPFO itself
approves the group term insurance scheme in lieu of EDLI. There are many
insurance companies that have filed for this product under IRDA
and provide higher coverage than EPFO. Also, for the same, premium
charged is lesser than 0.5 per cent . With an insurance company, the
employer has another advantage i.e. flexibility of flat coverage across all
employees irrespective of the pay (low basic pay employees will enjoy
higher coverage which otherwise might not fulfil the EPFO coverage
criteria/ conditions) or graded based on the basic pay. This is a yearly
renewable product.

12. UAN 2.0
a. The UAN in respect of member with first time employment would be got generated by the employer prior to
filing of ECR by employer for that member. In the earlier version, the employer used to file ECR with member
IDs and the UAN was allotted later on the basis of first time declaration made by the employer.
b. The linking of the existing UAN of the member with the present employment would necessarily be done by
the employer before filing of UAN based ECR. Earlier this was done after filing of ECR based on member IDs.
c. The Electronic Challan cum Return would be UAN based instead of member ID based.
d. The member details i.e. name of member, date of birth, father’s / Husband’s name etc. would be same for
all the employments, since the details would be fetched from UAN database of member
Q. How is the revised version of UAN different from earlier version?
Ans: The revised version of UAN has the changed process of UAN generation and linking as explained below:

13. HOW TO CALCULATE PENSION??
The calculation will be based on whether the joining date is after
15.11.1995. if it is so then
Earlier pensionable salary was 6500 before 1 Sep 2014. after that it has
been increased to 15000.
So what that means is earlier a person was contributing a maximum of
8.33% of 6500 which is Rs 541/- which now has increased to 1250/-.
EPS Pension = Average Salary X Number of Years Service
70
If person has completed more than 20 years in service then add two
years bonus in above equation.

14. Example to Illustrate Pension
• For example say average salary was 20000. date of joining is
01.01.1996. if he turns 58 years on 01.01.2017.
• So number of years service is 21 years. But till 01.09.2014
pensionable salary was 6500. So for 19 years the eps pension is
EPS Pension = Average Salary X Number of Years Service
70
• =(6500*19)/70 which is Rs 1764/-
• 2 years of pensionable salary of 15000 which amounts to Rs 429/-
plus 2 years extra since he has completed 20 years.
• So total pension is (1764+429+429) which is Rs 2622/-

15. ADVANCES IN EPF NORMS

16. PURCHASE OF HOUSE/ CONSTRUCTION OF
HOUSE

17. Withdrawals from EPF A/c for Repayment of
Home Loan

18. ADVANCE FOR ILLNESS

19. ADVANCE FOR MARRIAGES

20. PF DEDUCTION FOR INTERN/TRAINEES???
• The answer lies in the The Regional Provident Fund Commissioner, Mangalore ... vs M/S Central
Aercanut & Coca, Mangalore on 30 January, 2006
Central Aercanut invited applications from the intending applicants for undergoing training at its
Chocolate Factory, Puttur on a stipend of Rs.600/- per month which may be increased to Rs.800/-
per month after six months. It was also provided that the successful candidates may be considered
for regular posting in the factory. By its resolution dated 21.1.1990 after interviewing 270
applicants, 45 persons were selected. By a combined order dated 3.2.1990, Managing Director
notified the 45 persons who were selected. It was clearly indicated therein that the training in the
factory does not entitle any trainee to claim right of appointment after completion of training
period. It was also stipulated that if any trainee leaves the factory within one year, he was required
to refund the amount received by him as stipend. Notice was issued by the PF Commissioner
purportedly under Section 7-A of the Act in respect of the said 45 trainees. By order dated
15.5.1991 the appellant held that the trainees were employees for the purpose of the Act and the
respondent is liable to pay the quantified amount.
• Writ application was filed by the respondent questioning the determination. A learned Single
Judge with reference to various provisions of Industrial Employment (Standing Orders) Act, 1946
(in short 'Standing Orders Act') and The Apprentices Act, 1961 (in short the 'Apprentices Act')
held that the demand was unsustainable. A writ appeal was filed before the Division Bench which
as noticed above dismissed the same.

21. PF DEDUCTION FOR INTERN/TRAINEES(Contd.) Supreme
Court Judgement
• The Supreme Court has held that an apprentice or a trainee is not an employee and the employer is not
liable to contribute Provident Fund for him or her.
• A Bench, comprising Justice Arijit Pasayat and Justice R. V. Raveendran, held that trainees are apprentices
engaged under the Standing Order of an organisation or under the Apprentices Act and will not come within
the ambit of the Employees Provident Fund and Miscellaneous Provisions Act, 1952. The Bench noted that
Section 2 (f) of the EPF Act "defines an employee to include an apprentice, but, at the same time, makes an
exclusion in the case of an apprentice engaged under the Apprentices Act or under the Standing Orders.
Under the Model Standing Orders an apprentice is described as a learner who is paid allowance during the
period of training." Therefore, employers are not obliged to contribute to the PF for them.
• The Bench, by its order, upheld a judgment of the Karnataka High Court rejecting the claim of 45 trainees of
the Central Arecanut and Coca Marketing and Processing Co-op. Ltd, Mangalore, claiming PF payment. The
Regional Provident Fund Commissioner (RPFC), Mangalore, had held that the trainees were employees for
the purpose of the Act and the respondent was liable to pay the quantified amount.
• The company challenged this order in the High Court and the court concluded that trainees were not
employees as per the Act and reversed the RPFC's order.
• Dismissing the appeal, the apex court held that "in the case at hand, trainees were paid stipend during the
period of training. They had no right to employment, nor any obligation to accept any employment, if
offered by the employer. Therefore, the trainees were apprentices engaged under the "Standing Orders" of
the establishment. That being so, the view of the learned single judge as affirmed by the Division Bench of
the High Court cannot be faulted."