India: Proposal To Amend The Employees' Provident Fund & Miscellaneous Provisions (EPF And MP) Act, 1952

1. INTRODUCTION

The Ministry of Labour and Employment (the "Ministry") has proposed to amend the Employees' Provident Fund and Miscellaneous Provisions Act, 1952 (the "PF Act"). A draft of the Employees' Provident Fund and Miscellaneous Provisions (Amendment) Bill, 2019 (the "Bill") was circulated on August 23, 2019, seeking comments from the public. The last date for providing comments on the draft Bill is September 22, 2019.1

The Bill and the proposed amendments have been introduced in the context of the evolving industrial and economic scenario of the country, leading to increased mobility of labour and outsourcing of services.2

2. KEY PROPOSALS UNDER THE BILL

(a) Substitution of the definition of 'wages' in place of the existing definition of 'basic wage'

Under the PF Act, the basis for determining an employer or employee's provident fund ('EPF') contribution is basic wage, dearness allowance and retaining allowance. The proposed amendment seeks to fix components of remuneration paid. In this regard, the Bill suggests that, if identified components of wages3 paid are above 50%, or such other percentage as may be notified later, then such components, as per  the percentage identified, will be included in the definition of wages. Accordingly, a new definition of 'wages' has been introduced in the Bill, which will amend the existing definition of 'basic wages'. The said definition of wages is in conformity with the definition provided in the Code on Wages, 2019, passed earlier this year by the Parliament and assented to by the President of India on August 8, 2019.

(b) Flexibility with the Central Government to specify rates of contribution and the period for which such rates shall apply for any class of employees

The Bill proposes to introduce a concept where the Central Government will have the flexibility to specify rates of contribution and the period for which such rates shall apply for any class of employees. The rates of contribution will depend on various factors like age, income and gender. No change in the employers' contribution has, however, been proposed. This move is a logical step, after an announcement was made under paragraph 62 of the budget of the financial year 2015-16, which set out that, for employees below a certain monthly income threshold, contributions to EPF should be optional, without affecting or reducing the employer's contribution.

(c) Introduction of a period of limitation to initiate inquiries under Section 7A of the PF Act

Section 7A of the PF Act does not provide any period of limitation for the concerned authorities to initiate inquiries or settle disputes regarding (i) the applicability of the PF Act; and (ii) the determination of the amount due from any employer under any provision of the PF Act. The Bill proposes an amendment to Section 7A(1) of the PF Act to introduce a limitation period of 5 years for this purpose.

(d) Enhancement in the quantum of fines and penalties

The Bill proposes to enhance the quantum of fines, in pecuniary terms, by ten times.

(e) Composition of certain offences under the PF Act

The Bill proposes to introduce a new section, Section 14AD, which provides for the composition of certain offences under the PF Act, except those specified in sub-section (1), sub-section (1A) and sub-section (1B) of Section 14 of the PF Act.

(f) Option to subscribe to the National Pension System (the "NPS")

The Bill proposes to insert new sections , Sections 16B and 16C, under the PF Act, to provide an option to the EPF subscriber to opt for the NPS in lieu of benefits under the PF Act. The subscriber will also have an option to revert to the benefits under the PF Act. This amendment is also being tabled as a subsequent step to the announcement made under paragraph 62 of the budget of the financial year 2015-16.

(g) Introduction of guidelines for the grant of exemption under the PF Act

Currently, the PF Act does not stipulate any pre-condition for the grant of exemptions. Given this, the Bill proposes to introduce guidelines for the grant of exemption under the PF Act on lines such as past performance, net worth and group performance, as well as minimum strength of workers, collections, contributions and corpus of establishments.

3. INDUSLAW VIEW

The Bill has been introduced with the intention of addressing issues that have been the focus of several litigation proceedings in the past. These include disputes on basic wages and allowances.

Additionally, the Bill proposes to introduce a provision on limitation for actions under the PF Act. The proposal is in line with similar principles provided in legislations such as the the Employees' State Insurance Act, 1948 (prescribing a limitation period of 5 years) and the Income Tax Act, 1961 (prescribing a limitation period of 7 years). This step is likely to ensure effective compliance and uniformity, and also reduce the element of uncertainty for businesses across all sectors. Which of the proposed provisions will be introduced with retrospective effect, and which with prospective effect, remains to be seen.

Given the fact that the penalties under the PF Act were last revised in 1988, the proposal to increase the penalties seems to be in line with the Central Government's desire to be far more stringent with the compliance obligations of employers. The Central Government also seems to be trying its best to address the industry's demand of providing higher take-home salaries for certain categories of employees.

Footnotes

1. https://labour.gov.in/whatsnew/comments-amendment-employees-provident-funds-and-miscellaneous-provisions-epf-mp-act-1952

2. As stated by the Ministry, under the 'Brief note', attached with the Bill.

3. The aggregate of the following allowances, amounting to more than 50% or as notified percentage, of all remuneration, will be included in the definition of wages: (a) any bonus payable under any law for the time being in force, which does not form part of the remuneration payable under the terms of employment;  (b) the value of any house-accommodation, or of the supply of light, water, medical attendance or other amenity or of any service excluded from the computation of wages by a general or special order of the appropriate Government; (c) any contribution paid by the employer to any pension or provident fund, and the interest which may have accrued thereon ; (d) any conveyance allowance or the value of any travelling concession; (e) any sum paid to the employed person to defray special expenses entailed on him by the nature of his employment; (f) house rent allowance; (g) remuneration payable under any award or settlement between the parties or order of a court or Tribunal; (h) any overtime allowance; (i) any commission payable to the employee.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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