Clarifications on applicability of the newly amended provisions of Provident Funds (Third Amendment) Scheme, 2008 and Employees’ Pension (Third Amendment) Scheme, 2008

Background

The Ministry of Labour and Employment vide its special notification has amended Employees Provident Fund Scheme, 1952, and Employees Pension Scheme, 1995, thereby extending the application of both the schemes to cover specific category of Indian employees working outside India and expatriates working for an establishment in India.  The amended law is effective from October 1, 2008.

The said amendment raised a host of issues which remained unaddressed, prominent among which were applicability of such provisions to deputed/seconded expatriate workers, meaning of the term “total salary” for the purposes of contribution to provident fund, applicability in a split payroll situation, etc. 

In light of the ongoing ambiguity and various unaddressed issues, the EPFO has now issued a set of Frequently Asked Questions (“FAQ”), clarifying the issue of applicability of the said amendment to international workers and a host of other related issues.

In the following paragraphs, we have summarised the key issues that have been clarified by the FAQ.

Summary of clarifications provided by the EPFO

Meaning of key terms

International worker

An International Worker has been clarified to cover:

·         Indian worker who has divided his/her career between India and another country with whom India has entered into a bilateral Social Security Agreement (“SSA”); or

·         A foreign national working in India

An Indian employee attains the status of “International Worker” only on account of his employment in a country with which India has signed a SSA. He shall remain in that status till the time he avails the benefits under a social security programme covered under such SSA.

Detached worker

 “Detached worker “has been defined as an International Worker, not being an Indian employee, who is contributing to the social security programme of the source country in terms of the bilateral SSA signed between that country and India and who is exempt from making any contribution to the Indian system for the period and terms, as set out in such SSA.

Excluded employee

Excluded employee has been clarified to cover a “Detached Worker” posted in an establishment in India but contributing to the social security programme of the source country in terms of bilateral SSA signed between that country and India.

Indian employee

An Indian employee means an employee who is –

·         holding or entitled to hold an Indian passport; and

·         employed by an establishment covered under the Employee Provident Fund and Miscellaneous Provisions Act, 1952 (“EPF Act”)

No foreign national can be termed as an Indian employee.

Social Security Agreement

A SSA is a bi-lateral instrument to protect the interests of the workers in the host country. Being a reciprocal arrangement, it generally provides for avoidance of no coverage or double coverage and equality of treatment with the host country workers.

Generally a SSA covers three positions:

·         Detachment

Applies to employees sent on posting in the host country, provided he/she is complying under the social security system of the home country.

·         Exportability of Pension

Provision for payment of pension benefits to the beneficiary choosing to reside in the territory of the home country directly with out any reduction as also to a beneficiary choosing to reside in the territory of a third country.

·         Provision for totalisation of benefits

The period of service rendered by an employee in the host country to be counted for the “eligibility” purpose and the payment may be restricted to the length of service, on pro-rata basis.

Eligibility for becoming a member of the Provident Fund (“PF”)

All establishments covered under the EPF Act employing International Workers either in India or abroad shall be covered due to the said amendment.

Following employees are eligible to become members of the PF:

·         Every international worker other than “excluded employee” - from November 1, 2008

·         Every “excluded employee” on ceasing such status - from the beginning of the month following that in which he/she loses such status

There is no minimum period of employment in India to be eligible for membership.  Every eligible International Worker has to be enrolled from the first date of employment in India. 

Applicability in different scenarios

·         Where the complete salary is paid outside India – The provisions of the Provident Funds (Third Amendment) Scheme, 2008 would be applicable irrespective of whether the salary is paid in India or outside India.

·         Where a part of salary is paid in India and part outside India (Split payroll arrangement) – Contributions are to be paid on total salary earned by the employee.

·         Multiple country responsibility – In case of employees, having responsibilities for countries outside India, contribution is to be made on the “total salary”, covering responsibilities outside India also.

·         Indian employees working abroad – India has signed SSA with France, Belgium and Germany; however, the date of effect of SSAs is yet to be notified.  Therefore, in case an Indian employee’s name is retained in the pay bill maintained by the employer in India, he/she shall be covered under the EPF scheme.  However, if an Indian employee is directly employed by a local employer abroad, such an employee shall be covered by the host country legislation.  Similarly, local employees of an Indian establishment engaged abroad shall be covered by the local laws.

·         Foreign nationals employed in India – International Workers drawing salary in any currency and in any manner are to be covered.  Also, the purpose of visit is the main determinant for the social security compliances.

·         International Workers from Belgium, France and Germany – International Workers from these countries shall be enrolled as members of the EPF till such time the “date of effect” is notified by the Government of India and “detachment certificate” is obtained from the appropriate authority of respective countries.  Till the “date of effect” is notified, no Indian employee posted to these countries and none of the employees from these countries working in India shall be eligible for “detachment” status.

·         Third country national domiciled in a country with which India has a SSA – The above employee may be eligible for the benefit provided the third country has signed an enabling agreement with both India and the second country.

Components of monthly pay (for the purpose of calculation of PF contribution)

For the  purposes of PF contribution, the following component of salary would need to be considered:

·         Basic wages (all emoluments paid or payable in cash while on duty or on leave or holiday except Dearness Allowance, House Rent Allowance, overtime allowance , bonus, commission or any other similar allowance payable in respect of employment and any presents made by the employer);

·         Dearness Allowance (all cash payments by whatever name called paid to an employee on account of a rise in the cost of living);

·         Retaining allowance; and

·         Cash value of any food concession

Further, there is no cap on the salary up to which the contribution is to be made by the employer as well as the employee.

Status of Social Security Agreement

India has entered into a SSA with Belgium, France and Germany; however, the same are yet to be notified. Negotiations are at various stages with Netherlands, Czech Republic, Hungary, Norway, Switzerland, Sweden, Luxembourg, USA and Australia.  Also, government level talks are in progress with many countries where sizeable number of Indians are employed.

There is also a reciprocal agreement (non formal) between India and Korea to settle the claims of the employees on completion of employment in the host country.

Benefits available under the Amended Pension Scheme

Benefit of reciprocity even in absence of SSA

In a situation wherein an International Worker’s home country provides exemption from social security to Indian nationals going to work in that country under its domestic law despite the absence of a SSA with India, the benefit of reciprocity will be available at the time of withdrawal of pension claim and not at the time of coverage.

Survivor benefits in case of a covered employee, being a foreign national, issued by a country with which India does not have a SSA

In the absence of  SSA, the survivor benefits such as widow/widower pension, children/orphan pension, nominee/parent pension, etc, as the case maybe, shall be payable to a bank account of the eligible beneficiary in India.

Criteria for receiving the withdrawal benefit for the services of less than 10 years under Employees Pension Scheme, 1995

·         Employees hailing from countries with which India has SSA - Withdrawal benefit shall be paid or accounted for as per the provisions of the relevant SSA.

·         Other cases – Withdrawal benefit shall be guided by the principle of reciprocity with reference to the entitlement available to Indian employees in the other country.

Contributions payable along with interest

Full amount standing to the credit of a member’s account is payable if any of the specified circumstances under EPF Scheme is fulfilled.