Applicability of the EPF Act and EPF Scheme – Everything a Business Needs to Know

The EPF Act is an act that provides for the institution of provident funds, pension fund and deposit-linked insurance fund for employees in factories and other establishments and vide section 5 provides for a welfare 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 i.e. the EPF Scheme brought into force to secure a better future for employees enacted by the Government of India.

Vide the promulgation of the EPF Act, a statutory benefit is available to the employees post-retirement or when they leave the services. In the case of deceased employees, their dependents will be entitled to the benefits.

Under the EPF Scheme, both employers and employees must make their contributions to the Employees’ Provident Fund (EPF). The interest earned on the amount is credited to the EPF account and is available to the employee at the time of retirement or exit from the employment provided certain conditions are fulfilled.

The administration and management of EPF is carried out by the Central Board of Trustees (CBT) established by the Central Government consisting of representatives of the government, employers, and employees.

The Key Aspects Covered under the EPF Act and EPF Scheme

The EPF Act is applicable to every establishment which employees 20 (twenty) or more persons and every such employer shall be required to be registered under the EPF on the government website ‘Employee Provident Fund Organisation (EPFO)’.

  • The contributions payable by the employer under the EPF Scheme shall be at the rate of 12% (twelve percent) of the basic wages, dearness allowance (including the cash value of any food concession) and retaining allowance (if any) payable to the employees regularly on a monthly basis. The rate of 12 % (twelve percent) is divided as the employer’s contribution of 8.33 percent towards the EPS Scheme and 3.67 percent towards the EPF.
  • The employees are also required to make an equal and matching contribution of 12 % (twelve percent), which makes the total monthly percentage contributed to 24 % (twenty-four percent). The member can pay a voluntary contribution in excess of the normal contribution of 12% (twelve percent) of INR 15000/- (Indian Rupees Fifteen Thousand only). The total contribution i.e., voluntary plus mandatory can be up to INR 15000/- (Indian Rupees Fifteen Thousand only) per month. The employer may however restrict its own share to the statutory rate. The member can also contribute on higher wages i.e., more than INR 15000/- (Indian Rupees Fifteen Thousand only) after getting permission from APFC/RPFC as per the provisions of para 26(6) of the EPF scheme.[1]
  • As per para 26 A of the Employees Provident Fund Scheme, 1952 in the event of the employee earns more than INR 15,000 per month including dearness allowance, retaining allowance (if any) and cash value of food concession, the contribution payable by the employee, and in respect of the employee by the employer, shall be limited to the amounts payable on a monthly pay of INR 15,000 (Indian Rupees Fifteen Thousand only) including dearness allowance, retaining allowance (if any) and cash value of food concession.

Applicability of ESI Act

The promulgation of ESI Act envisaged an integrated need based social insurance scheme that would protect the interest of workers in contingencies such as sickness, maternity, temporary or permanent physical disablement, death due to employment injury suffered during the course of the employment resulting in loss of wages or earning capacity. The ESI Act also guarantees reasonably good medical care to workers and their immediate dependents. Following the promulgation of the ESI Act, the central government set up the ESI Corporation (“ESIC”) to administer the scheme.

The Key Aspects Covered under the ESI Act

  • The ESI Act was originally applicable to non-seasonal factories using power and employing 20 or more persons, but it is now applicable to non-seasonal power-using factories employing 10 or more persons and non-power using factories employing 20 or more persons.
    The employees who draw wages up to INR 21,000 (Indian Rupees Twenty-One Thousand) per month are entitled to the benefit under ESI Act by their respective employers. The applicability is enhanced to up to INR 25,000/- (Indian Rupees Twenty-Five Thousand) per month in the case of persons with disability.
  • The contribution payable to ESIC with respect to each employee is comprised of the employer’s and employee’s contribution. The rates are revised from time to time, currently, the employer’s and employee’s contribution rate (w.e.f. 01st July 2019) is 3.25% and 0.75% of the wages payable to an employee, respectively.
  • The state government has extended the coverage under Section 1(5) of the Act to shops, hotels, restaurants, cinema including preview theatres, road-motor transport undertakings, newspaper establishments, private medical institutions, educational institutions and to contract and casual employees of the municipal corporation/municipal bodies employing 10 or more persons in the certain states and union territories, where the state government is the appropriate government.
  • However, the central government has extended the coverage under Section 1(5) to shops, hotels, restaurants, road motor transport establishments, cinema including preview theatres, newspaper establishments, establishment engaged in the insurance business, non-banking financial companies, port trust, airport authorities, warehousing establishments employing 20 or more persons, where the central government is the appropriate government.
  • The Hon’ble Bombay High Court in The Assistant Director, ESIC versus M/s Western Outdoor Interactive Private Limited & Others[2] has made ESI Act applicable to software companies, covering such companies under the scope of the term factories.
  • The appropriate government may provide an exemption to any factory or establishment in any specified area from operation of the ESI Act for a period not exceeding one year and may from time to time renew any such exemption for periods not exceeding one year at a time, provided such exemptions may be granted only if the employees’ in such factories or establishments are otherwise in receipt of benefits substantially similar or superior to the benefits provided under this Act.

Conclusion

In view of the foregoing, the Company must ensure whether it falls under the purview of the acts in question. In the event, the acts are applicable to the Company, the Company should comply with its provisions in its letter and spirit. The Company may always choose to provide better benefits to its employees over and above the benefits provided under the acts in question.


[1] https://www.epfindia.gov.in/site_en/FAQ.php

[2] FIRST APPEAL NO.143 OF  2012

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