By: Sharanya Ranga and Mansi Singh
Foreign nationals were brought under the purview of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 (“EPF Act”) in October 2008. The EPF Act is the law governing social security in India. Originally, the EPF Act was applicable only to Indian workers. The Government of India in 2008 broadened the scope of the Act to include within its purview specific category of Indian employees working outside India and non-Indian employees working for an establishment in India.
Applicability of the EPF Act to International Workers
A new category of “International Worker” (“IW”)[1] has been introduced under the EPF Act in 2008 and every IW employed with an establishment in India to whom the EPF Act applies is required to become a member of the Provident Fund (“PF”) unless he/she qualifies as an “Excluded Employee”[2].
There is no minimum period of stay in India or a minimum threshold of monthly pay for triggering PF compliance. Every eligible IW has to be registered under the EPF Act from the first date of his/her employment in India. Also, there is no cap on the monthly pay up to which the PF contribution has to be made by both the employer as well as the IW.
Social Security Agreement
If there is a Social Security Agreement[3] (“SSA”) between two countries, the rules regarding PF of IWs are determined as per the provisions of the SSA. In respect of those countries with which India has not entered into any SSA, the PF provisions are governed by the EPF Act and the Employees’ Provident Fund Scheme, 1952 (“EPF Scheme”).
Duties of the Employer and Penalties for Non-Compliance
The EPF Scheme casts a duty upon every employer to deduct PF contributions and deposit them with the PF authorities. Employers are required to file a Form IW-1 to report details of their IWs on a monthly basis. In case there are no IWs, ‘nil’ return must be submitted. Where any employer fails to remit a contribution or makes short remittance of any contribution to the PF, interest at the rate of 12% per annum is payable from the date on which the amount became due till the date of actual payment. Such an employer may also have to pay penalty and/or be subjected to imprisonment that may extend upto 3 years in certain cases. No contractual arrangement can be made between an employer and an IW to waive the applicability of PF provisions to such an IW where he/she is not an Excluded Employee.
Foreigner’s Reporting Requirements
To track IWs, the regional offices of the PF authorities supposedly obtain data from the Foreigner’s Regional Registration Offices (“FRRO”) from time to time to cross-check the details of the IWs with their records. The FRRO monitors and keeps records of all foreign nationals visiting India. All foreign nationals coming to India on business or employment visa valid for more than 180 days are required to get registered with the FRRO within 14 days of arrival. Thus, by obtaining data from the FRROs, the regional PF offices have another source to identify IWs working in India and ensure that there is complete compliance under the PF provisions.
Withdrawal benefits for IWs
Upon termination/cessation of the employment in India, IWs can claim their PF. If there is an SSA between the two countries, withdrawal can be made in as provided in the SSA. If there is no SSA, the withdrawal of PF by the IW shall be upon retirement from service in the establishment at any time after the attainment of 58 years or upon retirement for medical reasons.[4]
Key Aspects:
Since most countries have restrictions on export of social security benefits, Indian employees posted abroad did not enjoy this benefit in the absence of SSA between India and such host countries (the country in which the IW is employed). The advantage of bringing IWs within the purview of the EPF Act and entering into SSAs with various countries is that Indian employees posted abroad are no longer required to contribute to the social security scheme of the countries with which India has entered into SSA.
The prime concern for employers is that they are entitled to limit their provident fund contribution to 12% of INR 15,000 for Indian employees even if the monthly pay of such employees exceed INR 15,000. This upper limit does not apply to IWs resulting in employers possibly facing significantly greater liability to make good any shortfall in contributions (along with interest and penalties) for IWs.
It is challenging for the expatriates working in India face a big challenge as their provident fund contributions are locked-in till they attain 58 years of age in the absence of an SSA between the home country (the country of which the IW is a citizen) and the host country.
The claims of the IWs could earlier only be settled in their Indian bank accounts but can now be settled in the international bank accounts of such workers[5]. This appears to apply only in the case of IWs coming from countries with which India has a SSA. The circular is silent about IWs from non-SSA countries. Some clarifications from the PF authorities in this regard will be helpful.
[1] International Worker means (a) an Indian employee having worked or going to work in a foreign country with which India has entered into a SSA and being eligible to avail the benefits under a social security programme of that country, by virtue of the eligibility gained or going to gain, under the said agreement; (b) an employee other than an Indian employee, holding other than an Indian passport, working for an establishment in India to which the EPF Act applies.
[2] In relation to the International Worker, the term “Excluded Employee” refers to an International Worker who is contributing to a social security programme of his /her country of origin with which India has entered into a SSA and enjoying the status of detached worker for the period and terms, as specified in such an agreement.
[3] SSA is a bi-lateral instrument to protect the interests of the workers in the host country. It being a reciprocal arrangement generally provides for avoidance of no coverage or double coverage and equality of treatment with the host country workers.
[4]http://www.epfindia.com/site_docs/PDFs/Circulars/Y2010-2011/Coord_AmendmentEPFSch_PenSch.pdf
[5]http://www.epfindia.com/site_docs/PDFs/Circulars/Y2014-2015/IWU_BankingAgree_IW_19453.pdf