Class notes- Social Security in India

Lecture- 2 Employees’ provident Funds

and Miscellaneous provisions Act,
1952
The Employees’ provident Funds and Miscellaneous provisions Act, 1952 is enacted
to provide a kind of social security. The Act mainly provides retirement or old age benefits,
such as Provident Fund, Superannuation Pension, Invalidation Pension, Family Pension and
Deposit Linked Insurance.
The Act provides for payment of terminal benefits in various contingencies such as
retrenchment, closure , retirement on reaching the age of superannuation, voluntary
retirement and retirement due to incapacity to work.
Four Schemes are framed under the Act by the central government:

• The Employees’ Provident Funds Scheme, 1952.

• The Employees’ Family Pension scheme, 1971.
• The Employees’ Deposit-Linked Insurance Scheme, 1976.
• The Employees’ Pension Scheme, 1995.
The Employees' Provident Fund and Miscellaneous Provisions Act 1952 applies to the
whole India except Jammu & Kashmir.

Application of the Act

Employees' Provident Fund and Miscellaneous Provisions Act 1952 is applicable to:

• Every establishment in which 20 or more are employed.

• Every establishment which is engaged in any one or more of the industries specified
in Schedule I of the Act or
• Any establishment notified by the central government.
Any establishment to which the Act applies shall continue to be governed by the Act
even if the number of persons employed therein at any time falls below

Definitions
“basic wages”-
“basic wages” means all emoluments which are earned by an employee while on duty or on
leave or on holidays with wages in either case in accordance with the terms of the contract
of employment and which are paid or payable in cash to him, but does not include-
a) the cash value of any food concession;
 b) any dearness allowance that is to say, all cash payments by whatever name called
paid to an employee on account of a rise in the cost of living, house-rent allowance,
overtime allowance, bonus, commission or any other similar allowance payable to
the employee in respect of his employment or of work done in such employment;
c) any presents made by the employer;

Schemes under EPF

Employees provident fund scheme 1952
EPF is the main scheme under the Employees' Provident Funds and Miscellaneous Provisions
Act, 1952. The scheme is managed under the aegis of Employees' Provident Fund
Organisation (EPFO).
Under EPF scheme, an employee has to pay a certain contribution towards the scheme and
an equal contribution is paid by the employer. The employee gets a lump sum amount
including self and employer's contribution with interest on both, on retirement.

• Employees drawing less than Rs 15000 per month have to mandatorily become
members of the EPF.
• Employee whose 'pay' is more than Rs 15,000 a month at the time of joining, is not
eligible and is called non-eligible employee.
However, an employee who is drawing 'pay' above prescribed limit (currently Rs
15,000) can become a member with permission of Assistant PF Commissioner, if he and his
employer agree.

Contribution by employer and employee

• The contribution paid by the employer is 12% of basic wages plus dearness
allowance plus retaining allowance.
• An equal contribution is payable by the employee also.
In the case of establishments which employ less than 20 employees or meet certain
other conditions as notified by the EPFO, the contribution rate for both employee and the
employer is limited to 10 percent.
For most employees of the private sector, it's the basic salary on which the
contribution is calculated. For example, if the monthly basic salary is Rs 30,000, the
employee contribution towards his or her EPF would be Rs 3,600 a month (12 percent of
basic pay) while the equal amount is contributed by the employer each month.
It should, however, be noted that not all of the employer's share moves into the EPF
kitty. Out of employer's contribution, 8.33% will be diverted to Employees' Pension Scheme,
but it is calculated on Rs 15,000.
Higher voluntary contribution by employee or Voluntary Provident Fund
The employee can voluntarily pay higher contribution above the statutory rate of 12 percent
of basic pay. This is called contribution towards Voluntary Provident Fund (VPF) which is
accounted for separately. This VPF also earns tax-free interest. However, the employer does
not have to match such voluntary contribution.

Withdrawals from the EPF account

According to the EPF Act, for claiming final PF settlement, one has to retire from service
after attaining 55 years of age. The total EPF balance includes the employee's contribution
and that of the employer, along with the accrued interest.

Partially withdraw
A person is eligible to withdraw money in advance from their PF Account for purposes like
marriage, education, medical treatment etc, subject to the prescribed conditions. Note that
the said advance is totally tax-free and interest-free.
There is, however, a window to partially withdraw the amount for those nearing
retirement. Anyone over 54 can withdraw up to 90 percent of the accumulated balance with
interest.
With effect from December 6, 2018, the employees can withdraw 75 per cent of
their EPF corpus after remaining unemployed for one month and balance 25% he is out of
employment for 60 straight days or more.

Interest on account
The interest rate for every month is 8.65%, which may differ every year (interest rate is
calculated every month, but it is deposited in the account at the end of the financial year)

Employee’s pension scheme, 1995

This scheme can help employees with long years of service receive a modest but
guaranteed pension throughout their retired life. All organised sector employees in India
who are enrolled with the Employees Provident Fund Organisation (EPFO) automatically
become members of the Employees’ Pension Scheme (EPS) as well.
While Employees contribution of 12% goes entirely into the EPF account which gives you a
lump sum on retirement, 8.33% of your employer’s contribution goes into the EPS to fund
your pension payouts post-retirement. The government also adds 1.16% of your pay to the
EPS kitty every month.
The maximum pay on which the EPS to accept employers’ is ₹15,000 per month. It is capped
at ₹1,250 per month (8.33% of ₹15,000).

Employees deposit linked insurance scheme, 1976

The scheme Established the purpose of providing life insurance benefits to the
employees. The benefit under the scheme is to provide the incentive to the members to
save more in the Provident fund account. The benefit under this scheme is linked to the
amount of accumulation in the Provident fund account of the member. All the members of
the employee’s Provident Fund Scheme are covered as members of the employee’s deposit
linked insurance scheme also.

Administration
Administration of the scheme given under this act is done by the central board, state
board, and regional committee, a chief executive committee appointed and constituted by
the central government.

Central board
The Fund shall vest in, and be administered by, the Central Board constituted under section
5A. Central board is created by official gazette notification given by the Central government.

Functions
• All the matter regarding “administration of the Scheme”, such as the progress of
recovery of PF, contribution and other charges, speedy disposal of prosecution,
settlement of claims and sanctions of advances.
• Section 6 and Section 6C discussions how the central board should use their fund
vested on them.
• Duty of the central board is to send an annual report to the Central government, of
its work and activities.
• The central government will submit a report to the comptroller and Auditor General
of India. Comments of Central board is laid down before parliament.

Constitution of the following a person as a member :

• Chairman and a vice-chairman appointed by the central government
• The central Provident fund commissioner, ex-official
• Among Central government officials (not more than five-person)
• A representative of states (not more than 50)
• Representing the employer of the establishment (10 people)
• Representing the employee of the establishment (10 people)

Executive committee: Section 5AA

Executive Committee to assist the Central Board in the performance of its functions. The
Executive Committee shall consist of the following persons as members, namely:-
a) a Chairman appointed by the Central Government from amongst the members of
the Central Board:
b) two persons appointed by the Central Government from amongst the persons
referred to in clause b of sub-section 1 of section 5A;
c) three persons appointed by the Central Government from amongst the persons
referred to in clause c of sub-section 1 of section 5A;
d) three persons representing the employers elected by the Central Board from
amongst the persons referred to in clause d of sub- section 1 of section 5A;
 e) three persons representing the employees elected by the Central Board from
amongst the persons referred to in clause e of sub- section 1 of section 5A;
f) the Central Provident Fund Commissioner, ex-officio.

State Board: section 5 B

The central government, after consulting with any of the states constitute the state board in
the following state, as provided for in the scheme.
Constitution of the state board is done by the notification in the official gazette.
Central government from time to time prescribes the duties to be performed by the state
board and the powers exercised by the state government.

Every board of trustee constituted under this section is a Body Corporate-

Being a body corporate, it has perpetual succession, a common seal and
right to sue or get sued in its name.

Regional committee
Until state board is constituted, the Central Government may set up Regional Committee,
which is under the control of Central Government, it works under the advice of the
following person:

Appointment of officers.
(1) The Central Government shall appoint a Central Provident Fund Commissioner who shall
be the chief executive officer of the Central Board and shall be subject to the general control
and superintendence of that Board.
(2) The Central Government may also appoint a Financial Adviser and Chief Accounts
Officer to assist the Central Provident Fund Commissioner in the discharge of his duties.
(3) The Central Board may appoint, subject to the maximum scale of pay, as may be
specified in the Scheme, as many Additional Central Provident Fund Commissioners,
Deputy Provident Fund Commissioners, Regional Provident Fund Commissioners,
Assistant Provident Fund Commissioners and such other officers and employees as it may
consider necessary for the efficient administration of the Scheme, the Pension Scheme and
the Insurance Scheme.
(4) No appointment to the post of the Central Provident Fund Commissioner or an
Additional Central Provident Fund Commissioner or a Financial Adviser and Chief Accounts
Officer or any other post under the Central Board carrying a scale of pay equivalent to the
scale of pay of any Group „A‟ or Group „B‟ post under the Central Government shall be
made except after consultation with the Union Public Service Commission:
EMPLOYEES’ PROVIDENT FUND ORGANIZATION
EPFO is one of the World’s largest Social Security Organisations in terms of clientele and the
volume of financial transactions undertaken.

• Its a statutory body-. Employees’ Provident Funds & Miscellaneous Provisions Act,
1952 and this law extends to the whole of India.
• EPFO comes under the purview of the Ministry of Labor and Employment and came
into being in 1951.

Structure of EPFO

• The Act and all its Schemes are administered by a tripartite Board called Central
Board of Trustees (EPF). It has representatives of Government (both Central and
State), Employers and Employees.
• The Board is chaired by the Ministry of Labour and Employment, Government of
India. The Central Board of Trustees (EPF) operates 3 schemes:
• The Employees’ Provident Funds Scheme 1952 (EPF)-Accumulation plus interest
upon retirement, resignation , death.
• The Employees’ Pension Scheme 1995 (EPS)-Monthly benefits for superannuation/
retirement, disability, survivor, widow (er), children.
• The Employees’ Deposit Linked Insurance Scheme 1976 (EDLI)-The benefit provided
in case of death of an employee who was a member of the scheme at the time of the
death.
• As on date, the Act extends to 187 classes of establishments. Any establishment
falling in any of the 187 categories mentioned above and employing more than 19
persons automatically comes under the purview of the EPF & MP Act 1952.

Functions Of EPFO
• EPFO performs the dual role of being the administration and overseeing the
implementation of the Act and also as a service provider for the covered
beneficiaries which includes both employers and employees i.e., members.
• EPFO assists the Central Board of Trustees (EPF) in the administration of Provident
Fund Scheme, a Pension Scheme and an Insurance Scheme for the registered
establishments in India and includes employees of such establishments and
international workers who are covered.
• EPFO’s functioning includes enforcement of the Act across the country, maintenance
of individual accounts, settlement of claims, investment of funds, ensuring prompt
pension payment and updating records etc.
• EPF Organization is also the nodal agency for implementing Bilateral Social Security
Agreements with other countries.
UAN- Universal Account Number
Universal account number (UAN) is number given to an employee by the Ministry of
Employment and Labour under the government of India, who is maintaining PF account. It
used to know information or track information done by his employer regarding his provided
fund (PF). When an employee joined in the new organisation, he was assigned with new PF
account, after UAN came into existence, the member of the assemble (employee) all his PF
account associated with multiple Ids of difference organization at one place. So through
UAN, difficulties faced by the employee when he/she joins the new organization is
overcome, with UAN they can track the activities if there are any payment issues.

Uses of UAN
• It is a unique number given to an employee, which is independent of employers.
• UAN is used to link all the PF account when the employee is switching his company.
• An employer can authenticate his employee by verifying this number and KYC
documents.
• EPF passbook can be verified by sending SMS EPFOHO UAN ENG TO 7738299899
from the mobile number which is registered under employee provident fund
organization.
• An employee can check his deposit done by his employer through online using UAN
number, and you can also get a monthly update regarding your deposit done by the
employer.
• Transparency Through UAN
• Through UAN employee can check the employer is depositing his PF amount
periodically, by registering on EPF member Portal using his UAN.
• The employee would be able to find out whether his employer is deducted or hold
back his PF.