Employees Provident Fund
by Asok Nadhani
1.1 Meaning
i.
The Employee’s Provident Fund
constitutes a portion of income saved by the employee from his present earnings
along with additional contribution by his employer. This Fund provides a social
security in future for a rainy day.
ii.
The term provident fund is not defined in the Provident
Fund act. The dictionary meaning of ‘Provident’ is to provide for future needs (especially
old age needs).
1.2 Object of the Act
i.
The object of the Act is to provide for
the institution of provident funds family pension and deposit-linked insurance
schemes for employees in factories and other establishments.
ii.
The principal duty is laid upon the
employer to [Jyothi Home Industries v. Regional Provident Fund Commissioner]:
-
put the Employees' Provident Fund and
Family Pension Schemes into operation
-
to make contributions of their and
employees' share to the Funds
-
deduct employees share from their
current earnings.
1.3 Applicability of the Act
1.
The Act applies to whole of India
It
applies to a factory engaged in any industry specified in Schedule I, or other
class of establishments as notified by Central Govt ,
employing 20 or more persons. [Springdales School v.
Regional Provident Fund commissioner]
2.
The Act is
also applicable to such establishment employing less than 20 person if :
- The Central Government makes it applicable by
notification in the Official Gazette.
- If the
employer and the majority of the employees of the establishment applies to
the Central Provident Commissioner to cover the establishment under the
Act, and the Commissioner issues a notification in the Official Gazette to enforce such Act.
3.
An establishment to which this Act
applies must continue to be governed by this Act, even if the number of the
persons employed therein falls at any time below 20. [Annamma
Iype v. Regional Provident Fund
Commissioner], [M/s S.K.
Nasiruddin BeediMerchant Ltd.
v. Central Provident Fund
Commissioner]
4.
The provision of the act is applicable
to all the departments and branches of the establishment irrespective of their
location and shall be treated as that of the same establishment. (Sec. 2-A) [Noor Niwas
Nursery Public
School Maharashtra and Goa ], [Sunder Transport v. Regional
Provident Fund Commissioner], [Eddy
Current Contracts (India
5.
The Central Government may add any
industry to Schedule I to apply the provision of the Act. (Sec.4)
1.4 Non-applicability of the Act (sec. 16)
i.
The Act does not apply to:
- Establishment
registered under the co-operative Society Act, 1912.
- Establishment
controlled by Central or State Government, or any employees of the
establishment entitled to benefit of contributory provident fund or old age
pension.
- Newly
set up establishments exempted for 3 years plus 2 years extension.
- Establishment
exempted by Appropriate government due to financial or any other reason.
ii. The Central Government may
exempt prospectively or retrospectively some of the establishments or class of
establishments from the operation of this Act having regard to the financial
position of the establishment (sec. 16(2)). [Bikaner
Cold Storage Co. v. R.P.F. Commr.],
[R. Ramakrishna Rao v. Stale of Kerala]
1.5
Application of Act to Common
Provident Fund (Sec. 3)
Where
an establishment shared a common provident fund with another establishment
immediately before the Act came into force, the Central Government may direct
that the provisions of this Act shall also apply to such
other establishment.
1.5.1
Schemes of the Act
The Act function under 3
schemes :-
1.
Employee provident fund scheme.
2.
Employee pension scheme.
3.
Employees deposit linked Insurance scheme.
1.6 Features of Employees Provident Fund Scheme
a. Members
Every employee (other than
exempted employee) working in an establishment covered by the pension of the
Act whose salary / wage does not exceed Rs.5,000 p.m. shall be eligible to join
provident fund scheme. Such employee become member of the fund from the date of
following the establishment.
b.
Contribution
i. Both the
employer and employee each contribute @ 10% of Basic Wage + D.A including cash
value of food concession & retaining allowance for the whole month,
irrespective of pay period. The employee may contribute more than 10%. However,
the Central Government may increase the rate from 10% to 12%.
ii. The employers
are not entitled to deduct the employer’s contribution from the wages of the
member employees.
iii. Employee’s
contribution shall be recoverable by means of deduction from wages of the
member.
iv. Payment of
contribution is a statutory liability of the employers.
c. Investment
The amount in the fund so
established is invested by the Board of Trustee in accordance with the
investment pattern approved by the government. The members are not entitled to
the interest on the money so invested.
d. Advances and Withdrawals
Advances and withdrawals
from the fund is allowed upto a specified limit.
1.7 Definitions (Sec. 2)
1.7.1 ‘Appropriate Government’ (Sec. 2
(a))
It
refers to:
-
Central Government in relation to
establishment controlled under it or connected with (a railway company, a major
port, a mine or an oilfield or a controlled industry) or branches in more than
one State.
-
State Government In relation to any
other establishment
State
1.7.2 Authorised officer (Sec. 2 (aa))
Authorised
officer means the Central Provident Fund Commissioner, Additional Central
Provident Fund Commissioner, Deputy Provident Fund Commissioner, Regional Provident
Fund Commissioner or such other officer as may be
authorised by the Central Government.
1.7.3 ‘Basic wages’ (Sec. 2 (b))
It
refers to all emoluments which are earned by an employee while on duty, leave,
holidays with wages paid or payable in cash.
But
does not include –
i.
the cash value of any food concession,
ii.
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,
iii.
any presents made by the employer. [Manipal Academy Hindustan
Lever Employees Union v. Regional Provident
Fund Commissioner], [Hindustan Lever Employees Union
v. Regional Provident Fund
Commissioner]
1.7.4
Contribution (Sec. 2 (c))
It
means a contribution payable in respect of a member, under the Employees'
Provident Fund Scheme or Employees' Deposit-linked Insurance Scheme.
1.7.5 Controlled industry (Sec. 2 (d))
It
means any industry the control of which by the Union
has been declared to be expedient in the public interest (like Industries
specified in the First Schedule of the Industries (Development and Regulation
Act, 1951).
1.7.6 Employer (Sec. 2 (e))
It
means–
1. in
relation to factory:
i.
the owner , occupier or its agent (or
the legal representative of deceased owner or the occupier)
ii.
the person named as a manager of the
factory under the Factories Act
2.
in relation to any other establishment
:
i.
the person who, or the authority which,
has the ultimate control over the affairs of the establishment.
ii.
the manager, managing director or the
managing agent, to whom the affairs of establishment are entrusted. [M. Shivram
v. Enforcement Officer,
Employee's Provident Funds, Shimoga], [Katari Colouring Factory v. Regional Provident Fund Commissioner], [Srikanta Dutta
Narsimharava Wodiyar v. Enforcement Officer, Mysore
1.7.7 Employee (Sec. 2(f))
a.
It means any person employed (directly
or through a contractor) in an establishment for wages in any kind of work
(manual or otherwise), or an apprentice (other than apprentice under the
Apprentice or under standing orders of the establishment).
b.
He may get his wages directly or indirectly from
the employer. [Prakesh D. Shah v. Union of India Om Roller
Flour Mills v. Union of India
1.7.8 Exempted employee (Sec. 2 (ff))
It means
an employee to whom a scheme would, but for the exemption granted under section
17, have applied.
1.7.9 Exempted establishment (Sec. 2 (fff))
It
means an establishment in respect of which an exemption from operation of the
Act has been granted under Sec. 17, from the application of any or all of the
provisions.
1.7.10 Factory (Sec. 2 (g))
It
means any premises (including the precincts thereof), in any part of which a
manufacturing process is being carried on (with or without the aid of power).
1.7.11 Fund (Sec. 2 (h))
It
refers to the provident fund established under the Employees' Provident Fund
Scheme.
1.7.12 Industry (Sec. 2 (i))
It
means any industry specified in Schedule I (other industry added to the
Schedule by notification under section 4).
1.7.13
Insurance Fund (Sec.
2 (i-a))
It
means the Deposit-linked Insurance Fund established under Sec. 6-C (2).
1.7.14 Insurance Scheme (Sec. 2 (i-b))
It means the Employees'
Deposit-linked Insurance Scheme framed under Sec. 6-C (l).
1.7.15
Manufacture or Manufacturing process (Sec. 2(t-c))
It
means any process for making, altering, repairing, ornamenting, finishing,
packing, washing, cleaning, breaking up, demolishing or otherwise treating or
adapting an article or substance with a view to its use, sale, transport,
delivery or disposal.
1.7.16 Member (Sec. 2 (f))
'Member'
means a member of the provident fund established under the Employees' Provident
Fund Scheme.
1.7.17 Occupier of a factory (Sec. 2
(k))
'Occupier
of a factory' means the person who has been entrusted or has an ultimate
control over the affairs of the factory.
1.7.18
Pension Fund (Sec.
2 (kA))
"Pension
Fund" means the Employees Pension Fund established under Sec. 6-A (2).
1.7.19
Scheme (Sec. 2 (I))
It means the Employees' Provident Fund
Scheme.
1.7.20
Superannuation (Sec-2
(ll))
"Superannuation"
means a member of a Pension Scheme who has attained the age of 58 years.
1.7.21
Tribunal (Sec. 2 (m))
Tribunal'
means the Employees' Provident Funds Appellate Tribunal constituted under Sec.
7-D.
1.7.22 Dearness allowance (Sec. 6)
'Dearness
allowance' is deemed to include also the cash value of any food concession
allowed to the employee.
1.7.23
Retaining allowance
It
means an allowance payable to an employee during any period in which the
establishment is not working.
1.8 Employees' Provident Fund
1.8.1 Formation of the Fund (Sec. 5)
The Central Government
has the power to form the Employees Provident Fund Scheme for establishment of
Provident Fund for the employees of the establishment to which the Act applies
to. The Fund shall vest in, and be administered by the Central Board
constituted under Sec. 5-A [Sec. 5 (1-A)].
1.8.2
Contributions (Sec.
6)
i. The
statutory rate of Employer’s as well as Employee’s contribution is 10 percent.
For scheduled industries, the rate is 12 per cent, applicable for person
employed directly or through contractor. The rate of employee’s contribution
can be increased by an employee at his will (the employer shall not be under an
obligation to pay higher contribution).
ii. The
contribution of the employer towards the Employee’s Provident Fund is
compulsory and legally enforceable as soon as the scheme became applicable to
them. [Changdeo Sugar Mills v. Union of India
1.8.3 Calculation
a. The
calculation of the contribution is done on:
-
Basic wages
-
Dearness Allowance (including the cash
value of any food concession)
-
Retaining allowance (if any),
actually drawn
during the whole month whether paid on daily, weekly, fortnightly or monthly
basis.
b. The
contribution has to be rounded off to nearest rupee.
1.9 Employees' Pension Scheme and Fund
(Sec. 6A)
The
Central Government has the power to frame Employees' Pension Scheme and
establish a Pension Fund. The Fund shall
vest in, and be administered by, the Central Board as specified in the Pension
Scheme. [Ram Singh v. State of Uttar Pradesh
1.9.1 Purpose of the Pension Scheme
The
purpose of Employees’ Pension Scheme is to provide:
i.
Superannuation pension, retiring
pension or permanent total disablement pension to the employees of any
establishment to which this Act applies.
ii.
Pension payable to the beneficiaries of
such employee (widow or widower’s pension, children pension or orphan).
1.9.2 Pension Fund
On
framing the Pension scheme, the following sums are to be paid from time to time
in the Pension Fund in respect of an employee enlisted under the Pension Scheme:
i.
sum of Employer’s contribution not
exceeding 8.33 % of pay (i.e. basic wages, dearness allowance and retaining
allowance, if any)
ii.
such sums as are payable by the
employer of an exempted establishment under Sec. 17 (6)
iii.
the net assets of the Employees' Family
Pension Fund as on the date of the establishment of the Pension Fund
iv.
any sum contributed by Central
Government as approved by the Parliament towards the Pension Fund.
v.
The Pension Fund shall vest in and
administered by Central Board constituted u/s 5.
1.9.3 Features
of Family Pension Scheme
1.
Members: This scheme is
compulsory for members of family pension scheme, 1971 and subscribers of PF
Scheme from 16th November
1995 .
2.
Contribution: Upto 15th
November 1995, employers contribution to PF shall remain in PF. Thereafter, from
employer’s contribution, 8.33% shall be remitted to Pension Fund and remaining 1.67%
to be remitted Provident Fund.
Central Government shall
contribute @ 1.16% of the pay of the member.
For the purpose of
computing the contribution of employer & employee, employee’s pay would be
limited to Rs.5,000.
3.
Administration: The Central
Board of Trustee shall administer the Pension Scheme.
4.
Qualifying
Condition: For receipt of pension:
i.
Service duration – Atleast 10 years (1 month in
case in case of death or disablement).
ii.
Age --- 58 Years.
iii.
Service required for voluntary retirement –20
Years.
5. Benefits:
i.
Minimum Pension:
-
For age between 48 to 53 years - Rs.600 p.m. (for
24 years of service).
-
For age 53 and above - Rs.500 p.m. which shall be
reduced to a maximum of Rs.325 and Rs.265 p.m. if past service is less than 24
years.
-
For service beyond 16.11.95 pension shall be
calculated according to formula.
ii.
On super
annuation:
-
If the service tenure is 33 years - 50% of average
salary or last 12 months (Basic + DA).
-
If the service tenure is more than 33 years between
50% to 60% of average salary.
iii. Reduced Pension:
If age is less than 50
years - No pension.
Thereafter, for every year
falling short of 58 years, 3% per year shall be reduced.
iv. Commutation of Pension:
Upto1/3rd of the pension
may be commuted, so as to receive 100 times the monthly pension. Balance
pension would be paid on monthly basis.
For example a person eligible for monthly pension of Rs.600, may commute
to (1/3 x 600) x 100 = Rs.20,000. The Balance 2/3rd i.e. Rs.400 per
month would be paid as monthly pension.
1.10 Employees' Deposit-Linked
Insurance Scheme & Fund
The
Employees’ Deposit-linked Insurance Scheme (called Insurance Scheme) was
introduced by the Amendment Act of 1976 (Sec. 6C).
1.10.1
Insurance Scheme
The
Central Government may frame Employees'
Deposit-linked Insurance Scheme for the purpose of providing life insurance
benefits to the employees of any establishment to which this Act applies [Sec.
6-C (1)].
1.10.2 Insurance Fund
After
the Insurance Scheme has been framed, the Central Government shall establish a
Deposit-linked Insurance Fund (known as Insurance Fund). The Insurance Fund
shall vest in the Central Board and be administered by it in such manner as may
be specified in the Insurance Scheme.
1.10.3 Quantum of Contribution
i.
The employer shall pay from time to
time in respect of every such employees an amount not exceeding 1 per cent of
the aggregate of the basic wages, dearness allowance, cash value of concessional
lunch and retaining allowance (if any) as the Central Government may specify.
[Sec. 6-C (2)]
ii.
The employer shall also pay into the
Insurance Fund, as determined by the Central Government to meet expenses for administration
of the Insurance Scheme (other than the expenses towards the cost of any
benefits provided by or under that Scheme) not exceeding 1/4th of
the employer’s contribution to the Insurance Fund). [Sec.6-C (4) (a)]
iii.
The Insurance Fund shall vest in the Central Board
and be administered as specified in the Insurance Scheme. [Sec. 6-C (5)]
1.10.4 Effect of the Insurance Scheme
Any
of its provisions may take effect either prospectively or retrospectively on
such date as specified in that Scheme. [Sec. 6-C (7)]
1.10.5
Presentment of Schemes before Parliament (Sec. 6-D)
Every
notification issued under Sec. 7 (1) and Scheme framed under Sec. 5 (Employees'
Provident Fund Scheme), Sec. 6-A (Employees' Pension Scheme) and Sec. 6-C
(Employees' Deposit-linked Insurance Scheme) shall be laid as soon as may be
after it is framed, before each Houses of Parliament.
1.10.6
Modification of Scheme (Sec.
7)
The
Central Government may, by notification in the Official Gazette, add to,
amend or vary, either prospectively or retrospectively the Schemes
1.11
Central Board (Sec.
5A)
The
Central Government may constitute a Board of Trustees called the Central
Board for administering the Employees' Provident Fund, Pension Fund and
Employees' Deposit-linked Insurance Fund established under the Schemes.
1.11.1 Composition of Central Board
The
Central Board shall consist of the following persons as members:
a.
A Chairman and a Vice-Chairman
appointed by the Central Government.
b.
Central Provident Fund Commissioner.
c.
Max.5 officials representing and
appointed by Central Government.
d.
Max.15 officials representing State
Government appointed by the Central Government.
e.
10 persons representing employers
appointed by the Central Government in consultation with association of
employers
f.
10 persons representing employees
appointed by the Central Government in consultation with organization of the
employees
1.11.2 Functions
of Central Board
1.
The Central Board shall administer the
Fund vested in it in such manner as may be specified in the Schemes.
2.
It shall perform such other functions
as it may be required to perform by or under any provision of the Scheme [Sec,
5-A (4)].
3.
The Central Board shall maintain the
accounts relating to income and expenditure as specified by Central Government
in consultation with CAG.
4.
The Central Board shall take policy decisions.
1.11.3 Audit
of accounts of the Central Board
The
accounts of the Central Board shall be audited annually by the CAG, and any
such expenditure in relation to the audit shall be payable by the Central Board
to him. [Sec. 5-A (6)]
1.11.4
Trustees of Central Board (Sec.
5-C)
Every Board of Trustees constituted
under section 5A shall be a body corporate under the name specified in the
notification constituting it, having perpetual succession and a common seal.
1.11.5
Executive Committee of Central Board (Sec. 5-AA)
The
Central Government may constitute an Executive
Committee, to assist the Central Board in the performance of its function.
1.11.6 Composition of Executive
Committee
i. A
Chairman appointed by the Central Government.
ii. 2
persons representing the Central Government and 3 persons representing the
State Government both appointed by the Central Government.
iii. 3
persons representing the employers and 2 persons representing employees both
elected by the Central Board.
iv. Central
Provident Fund Commissioner
All these members
of the Executive Committee are selected out of the members of the Central
Board.
1.12
State Board (Sec. 5-B)
The
Central Government may constitute a Board of Trustees called the State Board in
consultation with the State Government [Sec. 5-B (I)]. The State Board shall
exercise such powers and perform such duties as the Central Government may
assign to it from time to time (Sec. 5-B (2)).On the formation of the State
Board the Central Board shall transfer the amount standing to the credit of the
Provident Fund of all the employees in a separate Provident Fund for that State
which shall be administered by the State Board and on such happening the
Central Board shall stand dissolved.
1.12.1 Trustees of State Board (Sec. 5-C)
The
State Board shall be a body corporate under the name specified in the
notification constituting it, having perpetual succession and a common seal.
Every Board of
Trustees constituted under section 5A or section 5B shall be a body corporate.
1.13 Appointment of officers (Sec. 5-D)
The
Central Provident Fund Commissioner is the Chief Executive Officer of the
Central Board appointed by the Central Government and is responsible for the
general control and superintendence of that Board. The appointment of various
posts under Central Board shall be made after consultation with the Union
Public Service Commission. Accordingly a State Board may also appoint staff
with the approval of the State Government concerned.
1.13.1 Appointment
of Financial Adviser & Chief Accounts Officer [Sec. 5-D (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.
1.14
Acts of the Central and State Board (Sec. 5DD)
No act done or proceeding taken by the
Central Board or the Executive Committee constituted under section 5AA or the
State Board shall be questioned on the ground merely of the existence of any
vacancy in, or any defect in the constitution of, the Central Board or the
Executive Committee or the State Board, as the case may be.
1.15
Delegation (Sec. 5E)
The Central Board may delegate to the
Executive Committee or to the Chairman of the Board or to any of its officers
and a State Board may delegate to its Chairman or to any of its officers
subject to such conditions as specified in the Act.
For more details, refer
to Business & Corporate Laws, by Asok Nadhani, BPB Pubications, www.bpbonline.com,
bpbpublications@gmail.com
