ELECTRONIC PROVIDENT FUND (EPF)
1. Context
The Karnataka High Court recently struck down a 15-year-old amendment to the law which permits the incorporation of foreign workers in the Employees’ Provident Fund (EPF). Accordingly, it quashed the special provisions for international workers under paragraph 83 of the Employees’ Provident Funds Scheme, 1952 (EPF Scheme) and paragraph 43A of the Employees’ Pension Scheme, 1995 (EP Scheme) for being “unconstitutional and arbitrary.”
2.What are EPF benefits for foreign workers?
- The Employees’ Provident Funds and Miscellaneous Provisions Act of 1952, a cornerstone of India's social security framework, oversees three key schemes: the EPF Scheme, the EP Scheme, and the Employees’ Deposit-Linked Insurance Scheme of 1976.
- Administration falls under the purview of the Employees’ Provident Fund Organisation (EPFO), a statutory body. Entities with a workforce of at least 20 individuals must enroll with the EPFO and contribute to the Provident Fund (PF) for eligible staff. Amendments made in 2008 expanded the Act's coverage to include international workers or expatriates.
- These workers, employed in India for a minimum of six months, are obliged to make PF contributions amounting to 12% of their total salary, matched by a corresponding contribution from their employer.
- Unlike their local counterparts, international workers are not bound by the ₹15,000 per month wage ceiling for PF benefits.
- Withdrawal of PF savings for international workers in India is permissible upon reaching 58 years of age, retirement due to permanent incapacity, or as per terms outlined in existing Social Security Agreements (SSAs)
3. What are Social Security Agreements?
- These are agreements between two parties established to safeguard the social security rights of workers assigned to work in a foreign nation. Indian workers sent abroad by their Indian employers typically continue to contribute to social security in India according to local regulations.
- They might also need to contribute to the social security system of the host country. However, due to limitations on withdrawals and conditions regarding their length of stay, such employees seldom receive benefits from contributions to the Provident Fund (PF) made outside India.
- Consequently, Social Security Agreements (SSAs) are established to prevent this dual coverage, wherein individuals are covered by both the social security laws of their home country and the country they are working in. India currently has SSAs with 21 countries
4. Court Rulings
- The court emphasized that the primary objective of the 1952 Act was to provide retirement benefits as an alternative to pensions for industrial workers. However, it clarified that the legislation was never intended to universally grant Provident Fund (PF) benefits to employees regardless of their salary levels.
- "The EPF & MP Act (1952 Act) was enacted with the intention of ensuring that those with lower incomes receive retirement benefits, and it cannot be argued that employees earning substantial salaries should also receive benefits under this law," the Court stated.
- Justice K.S. Hemalekha highlighted the discrepancy where an Indian employee working in a foreign country with a Social Security Agreement (SSA) with India continues to contribute to the PF based on a modest amount of ₹15,000, while a foreign worker is required to contribute to the PF based on their entire salary, despite both being international workers.
- Considering this inequality unconstitutional, she remarked, "The Government of India fails to justify any connection with the intended goal; paragraph 83 clearly discriminates between international workers of Indian origin and foreign origin, thereby violating Article 14 of the Constitution of India."
- Dismissing the government's argument that special benefits were provided to international workers due to existing international obligations, the judge argued, "There is no logical basis for this differentiation, nor is there reciprocity that mandates the classification of foreign employees from non-SSA countries as international workers.
- The respondents have not indicated whether Indian employees working in non-SSA countries are required to contribute their entire salary without any statutory limit towards the PF of that country.
- Without parity and reciprocity, there is no justification for demanding contributions based on the entire salary of a foreign employee from a non-SSA country.
5.Way forward
India should consider introducing amendments to ensure that expats are treated at par with domestic workers with respect to provident fund benefits to attract foreign investments. Highlighting that the ruling is also likely to have an impact on India’s existing SSAs with other countries, she added, “If the Karnataka High Court judgment is upheld by the Supreme Court, it remains to be seen what amendments it [India] will bring about in the law to continue the reciprocal arrangements enshrined in the SSAs
Source: The Hindu
