New EPFO Norms Add to the Woes of Employees

By Sanjay Joshi
13/12/2012

The latest Employees Provident Fund Organization (EPFO) circular dated November 30, 2012 enjoins that various types of allowances applicable to employees will henceforth be added to the basic salary. The circular, however, does not specify the allowances that would be included in the basic salary. This move will inevitably increase the value of PF contributions resulting in a lower in-hand salary for all salaried class employees. Currently, the PF is computed based on Dearness Allowance and basic wages of an employee, at the rate of 12 percent contribution each from the employer and employee.

The officials of EPFO while forwarding the copies of the new circular to all PF offices across India observed that most companies,to decrease their PF burden often break-up basic salary into a variety of allowances.This was so because the definition of basic wages has been a controversial issue for a very long time. The Madhya Pradesh High Court and the Madras High Court in two different cases recently pronounced that while calculating the PF contribution, different kinds of employee allowances paid by the employer shall be taken into consideration. Based on these rulings, the officials of EPFO had to undertake a series of audits on Indian companies to facilitate recovery of various 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. Though companies may welcome this move towards time bound inquiries, which shields them from unwarranted harassment, it fundamentally seems to be anti-worker in its constitution. 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 stipulated 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 implications of the new circular are far-reaching impacting no less than over six crore workers all over India. Before passing a notice of such momentous importance, there should have been deeper deliberations and pointed consultations within the board members and trustees of the PF organization. It is learnt that the new order was released by the central PF commissioner on the last day of his government service leaving so many questions unanswered.

Though EPFO authorities defended the release of circular in terms of “bringing transparency in the system,” 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 stipulating that the earlier circular be kept in abeyance till further orders.

In a nation that cannot boast of a robust social security arrangement for its organized labour force apart from the extant provident fund, any abrupt and seemingly iniquitous changes in the PF provisions are entirely unwarranted.

Sanjay Joshi is an Editor at SHRM India.