Relief for Employers: New contribution scheme under EPF Act

April 2020

The Central Government on March 26, 2020 announced allocation of INR 17 million as relief under the Pradhan Mantri Garib Kalyan Yojana to prevent employment disruption and support small businesses during COVID-19 times. The relief shall be used towards monthly contribution for eligible employees under the Employees’ Provident Fund and Miscellaneous Provisions Act (EPF Act). Pursuant to this, Employees’ Provident Fund Office, Ministry of Labour (EPFO) has issued detailed scheme and guidelines through office memo of April 9, 2020 (No. C-I/Misc./2020-2021/Vol. II/Pt). The scheme and related information for availing benefit are hosted on EPFO’s website and can be accessed here.

Scope: The government shall on behalf of the covered employers and employees pay a total of 24% of monthly wages towards employee’s EPF account i.e., 12% for employer and employee respectively, for March, April and May 2020. Government’s contribution under the scheme shall be credited upfront and the covered employers do not have to seek reimbursements. For instance, if an eligible employee is drawing INR 10,000 per mensem, employer and employee each are obligated under EPF Act to contribute INR 1,200. As per the scheme, the total contribution of INR 2,400 will be paid by the government. Since the contribution is funded by government, the covered employers shall not deduct wages for employee’s share, and can also save their own share.

Eligibility: The scheme provides the eligibility criteria for employers and employees.

  • Covered employer is any establishment or factory registered as employer under EPF Act, provided it (i) employs up to 100 employees, and (ii) 90% or more employees are drawing monthly wages less than INR 15,000.  Based on historic data from filed electronic cum challan returns (ECR), EPFO has collated a tentative list of covered employers. This list has been communicated to zonal and regional offices. Once the employer initiates the process as explained below, the details will be confirmed and validated. EPFO has directed its information services division to ensure technical and software preparedness for implementing the scheme, validating covered employers and crediting contributions.
  • Eligible employees include those employees of the covered employer, who earn monthly wages less than INR 15,000, provided (i) his/her EPF account is seeded with AADHAR, (ii) he/she is a member of provident fund and pension scheme under EPF Act, (iii) contributions are received to his/her account for any period during last 6 months (September 2019 to February 2020), and (iv) the contributions are received on monthly wages lesser than INR 15,000. EPFO in FAQs has clarified that eligible employees who have attained 58 years of age and are no longer part of pension scheme are also eligible, as long as other conditions are satisfied.

Process: In order to avail the benefit under the scheme, the employer must for March – May 2020:

  • disburse wages to all employees (not just covered employees)
  • not deduct 12% contribution from eligible employee’s wages and pay them in full
  • file one valid ECR online for each month covering all employees who have EPF accounts
  • at time of filing ECR, certify in a specific format the correctness of information furnished with an undertaking that employer will be liable for penal and coercive consequences if any information is false or incorrect
  • once ECR is uploaded, the government’s 24% contribution will reflect for the eligible employees only
  • amounts due for contribution for excluded employees must be debited by the employer as per normal practice
  • all administrative charges will be borne by the employer for all employees
  • after remittance of the payment due from employer for excluded employees and administrative charges, government’s 24% contribution will be credited directly in accounts of eligible employees
  • file ownership return in Form 5A electronically providing details of all branches and department, including those which have been allotted different EPF code numbers

Impact: The scheme and detailed guidelines were much awaited after the announcement of March 26, 2020. Undoubtedly, the scheme will facilitate smaller businesses to cope with the financial hardship. But, it will also provide government with information on employee retention and payment of wages practices followed by organizations for the covered period. Thus, it becomes imperative for employers to read the scheme alongside the advisories and orders issued by the government on employment matters during the lockdown. Any organization that avails the benefit must account for the Ministry of Home Affairs order dated March 29, 2020 (No. 40-3/2020-DM-I(A)). As per this order, all employers must make payment of wages without any deduction to workers during lockdown and not terminate them. Quite naturally, it is difficult for concerned labour commissioners to track defaulting employers, unless the information is publicly available or provided by an aggrieved workman. Employers who avail the scheme’s benefit will provide the government with access to relevant information such as monthly headcount, wages paid, etc.. This, in turn, can be used by government for monitoring compliance with Home Ministry’s directive, other advisories and take suitable action against defaulting organizations.

By:

Arya Tripathy