PF and ESI Compliance Services

[A] Provident Fund

The EPF & MP Act, 1952, and the schemes framed thereunder are meant to provide Social Security in the form of Provident Fund, Pension and Insurance to all the employees who are employed for wages, in or in connection with the work of an establishment. The Employees Provident Fund Organization is entrusted to administer the Act, and in case of default, the Principal Employer is liable to penal action.

The Employees’ Provident Fund and Miscellaneous Provisions Act 1952 applies to the Factories engaged in Industries specified in Schedule I of the Act or to other establishments notified and engaging 20 or more employees. Further, a business entity which is not statutorily required to register can register themselves under this act voluntarily. Therefore, Companies with more than 20 employees (including contract workers) compulsorily have to register under the EPF Scheme. Once the entity gets covered under that PF Laws, then it continues to get covered even if the number of employees drops below 20.

With the Ease of doing initiatives of Government New companies incorporated will get EPFO registration number also on the MCA portal at the time of incorporation. Such companies will have to comply under the EPF & MP Act only when they cross the threshold limit of employment.

Who is an "employee" for PF?

The term "employee" has been defined to mean 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 employed by or through a contractor in or in connection with the work of the establishment. The Act does not differentiate between casual, contractual, and regular employees. Therefore, as per Section 2(f) of the EPF Act, the definition of an ‘employee’ is an inclusive definition, and is widely worded to include “any person” engaged either directly or indirectly in connection with the work of an establishment, and is paid wages and contractual employees, are also entitled to the benefit of provident fund.

Para 30(3) of the EPF Schemes state that it shall be the responsibility of the principal employer to pay both the contribution payable by himself in respect of the employees directly employed by him and also in respect of the employees employed by or through a contractor and also administrative charges

Compliance under the EPF& MP Act 1952, in respect of the employees engaged by or through Contractors [Circular No. CAIU/011(33)2015/HQ/Vol.II]

In the circumstances, Principal employers are advised to ensure the following by way of discharge of their statutory responsibility of providing social security to contract employees

1. The Principal employer should ensure that the contractor is registered with EPFO before awarding a contract. After the award of the contract, the contractor details should be entered in the EPFO portal.
2. Payments due to the contractor should be made only after verifying that the statutory PF payments have been made to EPFO. This can be verified either directly from the EPFO portal or insisting on a payment receipt obtained by the contractor from the EPFO portal while making payment.
3. It is further informed that even if the contractors are having separate PF code number, the overall responsibility of ensuring the compliance under the EPF & MP Act, 1952 for the employees working through the contractors by the deposit of the dues with the EPFO regularly, rests with the Principal employer.
4. The principal employer can also deduct EPF dues from the contractors' bill and deposit the same either against the contractors' code number or their own code number. It is to further inform that there is a provision on the official website of EPFO under the "establishment search option to verify whether the contractors are regularly depositing Provident fund contribution in respect of their employees

All principal employer is advised to ensure compliance with the above Circular.

What is “Wages” for the purpose of provident fund?

The “Basic wages” constitute all emoluments which are earned by an employee as per the terms of the contract and which are paid /payable in cash to him. However, it does not include- (a) Cash value of any food concession (b) D.A (c) HRA (d) overtime allowance. But this exclusion of dearness allowance finds inclusion in Section 6.

According to Section 6, the employers Contribution to the PF shall be 12% of the Basic wages, dearness allowance and retaining allowance (if any)] for the time being payable to each of the employees [(whether employed by him directly or by or through a contractor)], and the employees' contribution shall be equal to the contribution payable by the employer in respect of him and may if any employee so desires, be an amount exceeding 12% of his basic wages, dearness allowance and retaining allowance (if any), subject to the condition that the employer shall not be under an obligation to pay any contribution over and above his contribution payable under this section

Supreme court Ruling on 28 February 2019, Expanding Scope of “Basic Wages”

The apex court has held that all 'allowances', paid by the employer to its employees, will be included in the scope of 'basic wages' and hence will be subject to Provident Fund contributions. The Court clarified that only allowances of the following nature can be excluded from 'basic wages' for calculation of PF:

1. Allowances which are variable in nature; or
2. Allowances which are linked to any incentive for production resulting in greater output by an employee
3. That the allowances in question were not paid across the board to all employees in a particular category or were being paid especially to those who avail the opportunity.
4. In order that the amount goes beyond the basic wages, it has to be shown that the workman concerned had become eligible to get this extra amount beyond the normal work which he was otherwise required to put in.

The court opined, those wages which are universally, necessarily and ordinarily paid to all the employees across the board are basic wage. Where the payment is available to those who avail the opportunity more than others, the amount paid for that cannot be included in the basic wage. For example, the overtime allowance, though it is generally enforced across the board but not earned by all employees equally. Overtime wages or for that matter, leave encashment may be available to each workman but it may vary from one workman to another. The extra bonus depends upon the extra hour of work done by the workman whereas leave encashment shall depend upon the number of days of leave available to the workman. Both are variable. Given what we have observed above, we are of the opinion that the amount received as leave encashment and overtime wages is not fit to be included.

At present, an employee contributes 12% of the Basic wages + Dearness allowance + Retaining allowance in EPF.

After the Supreme Court ruling, it is held that the special allowance is part of the basic wages for computing the employee’s provident fund (EPF). The said ruling had changed the PF Computation mechanism, thereby it will have bearing on the Net Take Home of the Employee, whose “Basic Salary” less than Rs. 15,000/- and also increase the Employer PF Contribution Cost. The increase in the PF Contribution will ultimately result in Increase in the PF Balance in the employees’ EPF Account

A review petition was filed with respect to the, 2019 above apex court ruling and the same has been dismissed by the honourable court on August 28, 2019.

In the case of International workers, PF is payable on gross wages. Any person holding a foreign passport (means other than Indian passport) is called as an International Worker.

Manner of Contribution

1. An employee contributes 12% of the Salary for the purpose of PF in EPF.
2. The employer also pays 12% of payout of which 8.33% of pay is diverted to Pension Fund and the rest 3.67% is diverted to EPF.
3. An employer also pays 0.5% of payout under the EDLI Scheme.

The entire amount is then required to be deposited in the fund within 15 days from the date of such collection.

For every employee, it is mandatory to contribute towards EPF and EPS if his/her wages is below Rs. 15,000 per month. And those who are earning above Rs.15,000 is not compulsory but may contribute voluntarily. However, in the case where an employee is drawing a salary of more than Rs. 15000/- he is not required to become a member if he is not already holding the PF membership. Otherwise, if both the employer and employee are willing, he can become a member by giving option under Para-26 (6) of the PF Scheme. The option has to be submitted to the EPF office within 6 months of joining of such member.

Compliances required under PF Laws

1. Registration under the Act within 15 days from the date of applicability
2. Amendments in the registration if any shall be made 15 days of such change
3. Payment of PF Liability shall be made within 15th of the following month
4. PF Annual return to be filed 25th April of every year
5. Regular Compliances related to PF registration and Amendments, Addition of employee, removal, maintenance of records, KYC Updation, Nomination, etc.

Our firm with experienced professionals is well equipped in PF Compliance, registration, PF Return Filing, and Consultancy Services.

[B] Employees' State Insurance

Employees’ State Insurance Scheme of India is a multi-dimensional Social Security Scheme tailored to provide Socio-economic protection to the 'employees' in the organized sector against the events of sickness, maternity, disablement, and death due to employment injury and to provide medical care to the insured employees and their families.

The ESI Act 1948, requires every entity, factory, or the establishment, employing 10 employees or more, is required to register itself with the ESIC. The existing wage-limit for coverage under the Act is Rs.21,000/- per month (with effect from 1.01.2017).

According to Section 2(22) of the ESI Act 1948, wages means all remuneration paid or payable in cash to an employee, if the terms of the contract of employment, express or implied, were fulfilled and includes any payment to an employee in respect of any period of authorised leave, lock-out, strike which is not illegal or lay-off and other additional remunera­tion, if any, paid at intervals not exceeding two months but does not include:-

1. any contribution paid by the employer to any pension fund or provident fund, or under this Act;
2. any traveling allowance or the value of any traveling concession;
3. any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment; or
4. any gratuity payable on discharge;

From July 1, 2019, the total contribution for a subscriber is 4 percent, which is split between the employer at 3.25% and the employee at 0.75% of their salary and the same to be paid on or before 15th of the subsequent month.

If the wages of an employee (excluding remuneration for overtime work) exceeds the wage limit prescribed by the Central Government after the start of contribution period, he continues to be an employee till the end of that contribution period and the contribution is to be deducted and paid on the total wages earned by him.

Collection of Contribution

An employer is liable to pay his contribution in respect of every employee and deduct employee’s contribution from wages bill and shall pay these contributions at the above specified rates to the Corporation within 15 days of the last day of the Calendar month in which the contributions fall due. The Corporation has authorized designated branches of the State Bank of India and some other banks to receive the payments on its behalf.

Contribution Period and Benefit Period

There are two contribution periods each of six months duration and two corresponding benefit periods also of six months duration as under.

Cash benefits under the scheme are generally liked with contributions paid. The benefit period starts three months after the closure of a contribution period. The two types of periods are elucidated below:

Contribution period Corresponding Cash Benefit period

Compliances required under ESI Laws

1. Registration under the Act within 15 days from the date of applicability
2. Amendments in the registration if any shall be made 15 days of such change
3. Payment of ESI Liability shall be made within 15th of the following month
4. Regular Compliances related to Addition of employee, removal, maintenance of records, Nomination, Other required returns, etc.
5. With effect from 1st October 2019, Employees must be registered online on the date of appointment; the online system shall allow a maximum of 10 days to register the new employee.

Our firm with experienced professionals is well equipped in ESI Compliance, registration, ESI Return Filing and Consultancy Services.