Challenges to Employees - New EPFO Standards

Greetings from PI Manpower at this very last day of the year 2012..!! People around the world are in mood of celebrations and so are we. However, for the employees in India, there are more challenges to come.

As per the latest circular from Employees Provident Fund Organization (EPFO), several types of allowances applicable to employees will now onwards be added to their basic salary. However, it’s yet to be mentioned which allowances are to be included. This will certainly lead to an increase in the value of PF contributions and consequently, all salaried employees would have a lower-in-hand salary.  At present Provident Fund of an employee is calculated based on Dearness Allowance (DA) and basic wages @12% from employee as well as employer.

It was observed by the EPFO officials that most of the organizations often break-up basic salary into a variety of allowances to decrease their PF burden. The Madhya Pradesh High Court and the Madras High Court recently pronounced that while computing PF contributions, different kinds of employee allowances paid by the employer shall be considered. Based on this, EPFO undertook a series of audits on Indian companies to facilitate recovery of several PF contributions.

R.C. Mishra, the central PF commissioner directed in the new circular that going forward compliance actions and probes against erring employers shall not go beyond preceding seven financial years because such inquiries often do not lead to the identification of the rightful recipients. Although organizations may welcome this move towards time bound queries, which protects them from needless harassment, it essentially seems to be anti-worker in its structure. Firstly, not many employees check their PF deposits regularly as the EPF statement rarely reaches them on time. Secondly, they consider it best not to complain against their respective employers when they are in active service, fearing the loss of their jobs. In virtue of this, a number of trade unions and labour boards have denounced the provision that limits the scope of inquiry period against the defaulter companies.

The six-page circular also specified that workers will have to file specific returns regarding statutory PF deductions, thereby benefitting the companies submitting their records for assessment. However, the circular states clearly, “There shall be no assessment without identifying individual members in whose account the fund is to be credited.”

The consequences of new circular are far reaching affecting approximately six crores workers all across India. The release of this new circular was defended in terms of “bringing transparency in the system”, however, the labour ministry doesn’t seem much convinced in such politically sensitive times. Some of its officials have indicated that the ministry would possibly ask for the withdrawal of the new circular. According to one of its unnamed officials, “The labour ministry is setting up a committee comprising legal experts to evaluate the circular, (on) whether it is complying with the EPF Act, 1952.”

Meanwhile, on December 18, 2012, Ravi Mathur, the new Central PF Commissioner released a new circular specifying that the earlier circular be kept in abeyance till further orders.