Introduction
The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (“EPF Act”), is a compulsory welfare law established for betterment of employees and their families in factories and other shops & commercial establishments across India. The EPF Act’s goal is to safeguard the future of the employee after he retires or for his dependents in case of his early death. The EPF Act also provides for old age and survivors’ pension through a contributory provident funds in which both the employee and employer would contribute.
Applicability
The EPF Act covers
Additionally, if the employer and the majority of employees request the Central Provident Fund Commissioner to apply the EPF Act to their establishment, it can be applied from the date of agreement or a future date. It’s crucial to understand that once an establishment falls under the EPF Act, it continues to be regulated by it even if its employee count drops below 20.
Schemes
The EPF Act encompasses three primary schemes and these are managed by the Employees' Provident Fund Organisation (EPFO), which operates under the Ministry of Labour and Employment
These schemes collectively aim to provide comprehensive social security and financial stability to employees in applicable establishments.
EPF Calculation
The contribution to the EPF is divided into two parts: one part is contributed by the employee, and the other part is contributed by the employer.. Under the Employees' Pension Scheme (EPS), contributions are not applicable to employees whose basic salary exceeds ₹15,000 per month. This means that if an employee's basic salary is above this threshold, they and their employer are not required to contribute to the EPS. Instead, the entire employer's contribution goes towards the Employees' Provident Fund (EPF). The breakdown of the employer’s 12.5% of
basic wages contributions under the EPF, EPS, and EDLI schemes are hereunder:
| Contribution towards | Employee’s contribution (in %) | Employer’s contribution (in %) |
|---|---|---|
| EPF | 10% or 12% | 3.67% |
| EPS/EPF | – | 8.33% |
| EDLI | – | 0.5% |
EPFO also announces annual interest and below are the rates for past few years which is deposited in the employees’ account at the end of the financial year:
Inspection by Inspectors
An EPF inspection the EPFO identifies potential defaulters by reviewing available data and records. Likely defaulters are nudged to remit their dues to encourage self-compliance. Continuing defaulters are requested to declare and remit dues or declare closure or a physical inspection is conducted. Inspectors visit the workplace without prior notice to verify compliance with EPF regulations to search establishments and examine relevant documents and individuals or make copies or seize documents if they suspect an offense. This multi-step process ensures that establishments comply with EPF regulations and protect workers’ social security rights.
Consequences on Default of contribution by employers
Section 14 of the EPF Act outlines penalties for various offenses related to the avoidance of payments under the Act. It specifies that anyone who knowingly makes false statements to avoid payments can face imprisonment for up to one year, a fine of five thousand rupees, or both. Additionally, employers who fail to comply with specific provisions regarding payment of inspection and administrative charges can be punished with imprisonment for up to three years. In cases where employers default on paying employees’ contributions deducted from wages, the minimum punishment is one year of imprisonment and a fine of ten thousand rupees. The section also mentions measures like attachment & freezing of bank accounts, realization of dues from debtors, warrant and arrest of the employer for enforcement.
Penalties
Employers who fail to pay EPF contributions on time are subject to penalties and interest on the overdue amounts. According to Section 14B of the Employees’ Provident Funds and Miscellaneous Provisions Act, employers must pay damages for any defaults in contributions. Additionally, Section 7Q of the EPF Act mandates a higher interest rate on the outstanding amount. The EPFO has specified the following rates for delayed EPF contributions:
Section 14 of the Employees Provident Funds and Miscellaneous Provisions Act, 1952, outlines penalties for various offenses. It includes imprisonment and fines for making false statements to avoid payments, with penalties up to one year in prison or a fine of Rs. 5000, or both. Employers defaulting on contributions or inspection charges face imprisonment up to three years and fines, with specific minimum penalties for different offenses. The EPF Act also provides for penalties for non-compliance with provisions related to inspection charges and administrative charges, with imprisonment up to one year and fines up to Rs. 5000. Additionally, any contravention of the EPF Act or conditions for exemptions can result in imprisonment up to six months and fines up to Rs. 5000. Courts may impose lesser sentences for adequate and special reasons.
Conclusion
The EPF Act is a welfare legislation designed to benefit employees, with various provisions discussed in this article highlighting its significant role in the history of welfare laws. It involves contributions from both employees and employers. It is the government’s responsibility to address these issues to enhance the EPF Act’s effectiveness and ensure it benefits workers. Additionally, both workers and employers must be aware of their respective rights and duties. Each employee is assigned a Universal Account Number (UAN), which remains the same throughout their career, even if they change jobs. Employers must file Form IW-1, a monthly return under the EPF scheme for international workers (IWs), within 15 days of the close of each month. If there are no international workers employed during a particular month, employers are required to submit a ‘Nil’ return on the portal.