Provident fund is a kind of retirement benefit payable to the employees at the time of their retirement.Provident fund is a government-managed compulsory retirement savings scheme and it is also known as pension fund in some sectors.The Employees’ Provident Funds And Miscellaneous Provisions Act,1952 has been enacted to provide provident funds,pension funds and deposit linked insurance funds for employees in factories and other establishments.Let us see how this provident fund is beneficial to the workers.
To whom this Act is applicable ?
This Act applies to every establishment which is a factory and in which twenty or more persons are employed[i].It shall also apply to any other establishments which the Central Government may specify,by notification in the Official Gazette[ii].Therefore the number of employees working in the establishment or factory must be twenty or more to get benefits under this Act but the number of employees may be even below twenty if the Central Government specifies in the notification.
According to section 1(5) of the Act,the establishment shall continue to be governed by this Act even if the number of employees falls below twenty at any time thereafter.As per the rules,the employee whose salary is below Rs.15,000 per month must mandatorily become member of Employees’ Provident Funds Scheme.Regarding the employees whose salary is above Rs.15,000 are not required compulsorily to become the member of Employees’ Provident Funds Scheme and if they want to become a member they can do so after obtaining the permission of Assistant Provident Fund Commissioner.The employees can transfer his accumulation of Provident fund from one establishment to another if he changes his employment before the age of his retirement.
Contributions to be made by the employees and employers:
According to section 6 of the Act,each employee and employer should make their part of contribution to the Provident Fund.Employer should pay his contribution at the rate of twelve percent of basic wages,dearness allowance and retaining allowance and the employees’ contribution should be equal to that of employers’ contribution.If an employee desires,he can contribute more than the rate prescribed towards his Provident Fund but an employer is not under any obligation to contribute more or above the rate mentioned under this Act.If the employees are less than twenty or under certain other conditions mentioned by Employees’ Provident Fund Organization,then both the employer and employee can limit their contribution at ten percent.The contribution of employee can be recoverable through deduction from the wages and it is absolutely a permissible deduction under this Act and also under The Payment of Wages Act,1936.It is the responsibility of employer under section 6(1) to make payment of his contribution as well as his employees’ contribution[iii].
And these contributions will be payable to employees at the completion of superannuation period or at their retirement.They can even withdraw the amount in between, subject to the conditions if there is any emergency or sudden contingencies.
Important judgements delivered in relation to The Employees’ Provident Funds And Miscellaneous Provisions Act,1952 :
In 1962,the issue whether production bonus is a part of basic wages or not was brought before the Supreme Court and it was held that it cannot be brought under basic wages for calculation of PF amount since it is paid as bonus to the employees who produced more than the normal standards and not paid to all employees[iv].Hence it was held that any incentives paid to the employees who avail the opportunities, which is not normally paid in common is not basic wages or to be a part of basic wages.The same was again confirmed by the Supreme Court in Manipal Academy case also[v].
After a long time,a landmark judgement has been delivered by the Supreme Court in February 2019[vi] on the issues regarding the components of basic wages for the calculation of PF amount.The Apex Court held that certain allowances are considered to be a part of basic wages and employers cannot omit them just as to avoid or reduce their part of contribution to Provident Fund.Further it was held that the authority and appellate authority under the Employees’ Provident Fund Act should examine the facts to decide whether certain special allowances are really the part of basic wages or it is disguised as special allowances as to which the employers can escape from contribution to that extent.In short,it was held that unless until it is excluded by law all the special allowances which are ordinarily,universally and necessarily paid to the employees will form the part of basic wages which would obviously attract PF contributions.
Consequences of the judgement delivered in Surya Roshini case:
As a result of the judgement delivered in Surya Roshini case,the liability of the employers has been increased because it enable certain allowances to be added under the category of basic wages.However the rate of contribution is limited to 12% of basic wages,still it increase the total amount of contribution if certain special allowances are allowed to be the part of basic wages.In addition to that it also forces the Parliament to clear the doubts which arises on ‘what are the components of basic wages and what are the allowances that can be brought under the roof of basic wages subject to PF contribution ?’
As we have seen earlier,the dearness allowance and retaining allowance has been there already as a part of provident fund contribution by virtue of section 6 of the Act.With regard to the definition of basic wages,section 2(b) excludes some of the allowances (House Rent Allowances,Overtime Allowances,etc.,) to form part of basic wages but still it leaves space for the employers to get confused in relation to certain allowances which are not stated in the Act expressly.And moreover the judgement of Surya Roshini case has major impact with regard to the PF contribution since it rises the amount of contribution payable by employers as well as employees in one hand and also rises the benefits obtained by the employees at the end (after retirement) on the other hand.
Hence these reasons made the Ministry of Labour and Employment,Government of India to draft a bill proposing certain amendments in The Employees’ Provident Funds and Miscellaneous Provisions Act,1952.The Highlights of draft bill dated August 23,2019 are as follows :
Replacing the definition of wages
The bill proposes to replace the definition of ‘basic wages’ to ‘wages’ to match the line of definition of wages given under Code on Wages,2019.This proposal is made in order to erase the ambiguities in relation to inclusion of certain allowances in the definition of wages for the purpose of computing Provident Fund contribution.
Limitation period for inquiry
The draft bill proposes to introduce the limitation period of five years to initiate the proceedings and inquiry with regard to amount due from the employers and it also wants PF authorities to finish such inquiries within maximum period of two years.
Heavier penalties for offences
The bill contemplates higher penalties for non compliances of provisions and compounding of certain offences under the Act.It stipulates to increase the quantum of penalties by ten times since the penalty amount has not been revised since 1988.
Option to choose the scheme
The bill provides the members (employees under The Employees’ Pension Scheme,1995) an option to opt for National Pension Scheme under Pension Fund Regulatory and Development Authority Act,2013.A member cannot enjoy the benefits under both schemes at a time and he can also rejoin the Employees’ Pension Scheme under the Employees’ Provident Fund Act subject to the conditions.
Various rate of PF contribution
The bill also proposes to specify different rate of contribution of PF for different class of employees and also to provide them an option to decide whether to contribute for Provident Fund or not.This is proposed to reduce the burden of employees since all employees are not drawing same level of wages.
Parliament also continuously making effective reforms in labour laws in order to ensure the welfare of employees and employers as well.If the EPF bill,2019 is enacted,then it will be the biggest relief to employers who are waiting for the most expected provision of limitation period under the Act which safeguards the employers from being prosecuted without giving enough period of time.And not forget to mention that it would also help us to know what are the allowances that would attract PF contribution.The benefits derived under Provident Fund will not stop the employee from claiming other similar benefits such as gratuity and pension if the establishment where he was working is a flourishing one[vii].Hence it is very clear that Provident Fund is beneficial to the workers otherwise known as employees undoubtedly.
Edited by Pragash Boopal
Approved & Published – Sakshi Raje
[i]The Employees’ Provident Funds and Miscellaneous Provisions Act,1952, S 1(3)(a).
[ii]The Employees’ Provident Funds and Miscellaneous Provisions Act,1952, S 1(3)(b).
[iii]Solanki Workshop v. Regional Provident Fund Commissioner, AIR 1963 MP 7.
[iv]Bridge and Roof Co. (India) Ltd. v. Union Of India, AIR 1963 SC 1474.
[v]Manipal Academy of Higher Education v. Provident Fund Commissioner,AIR (2008) 5 SCC 428.
[vi]Surya Roshini Ltd. v. Employees’ Provident Fund & Another, 2011 (2) MPLJ 601.
[vii]Anti-Biotics v. Workmen, AIR 1967 SC 948.