EPFO & MP Act, 1952 (Analysis & Guide to Employers/HR/Consultants)

Gain comprehensive insights into the EPFO & MP Act, 1952 with our analysis and guide for employers, HR professionals, and consultants. Understand key definitions, registration requirements, compliance obligations, record maintenance, and penal actions to ensure full compliance with this crucial social security legislation.

The Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (EPFO & MP Act, 1952) is a social security legislation that aims to provide financial security and stability to employees in India.

As a professional/consultant/HR Manager you need to have a holistic understanding of the law in order to grasp the legislative intent and ensure its compliance.

Following things must be in your knowledge –

A-Frequently used words- Definitions.

B-Registration requirement.

C-Compliance required as an employer.

D-Maintenance of records and registers.

E-Penal actions.

A-FREQUENTLY USED WORDS- DEFINITIONS.

1.Establishment-

• The term “establishment” refers to any entity that employs 20 or more persons, or any entity that is engaged in an industry that has been notified by the Central Government.
• An establishment may include factories, mines, plantations, shops, and other types of businesses or organizations that meet the criteria of employing 20 or more persons.

2.Employer-

• in relation to an establishment which is a factory, the owner or occupier of the factory, including the agent of such owner or occupier, the legal representative of a deceased owner or occupier and, where a person has been named as a manager of the factory under clause (f) of sub-section (1) of section 7 of the Factories Act, 1948 (63 of 1948), the person so named; and
• in relation to any other establishment, the person who, or the authority which, has the ultimate control over the affairs of the establishment, and where the said affairs are entrusted to a manager, managing director or managing agent, such manager, managing director or managing agent

3.Employee-

• “employee” means any person who is employed for wages in any kind of work, manual or otherwise, in or in connection with the work of an establishment and who gets his wages directly or indirectly from the employer and includes any person-
  • Employed by or through a contractor in or in connection with the work of the establishment.
  • Engaged as an apprentice, not being an apprentice engaged under the Apprentices Act, 1961 (52 of 1961), or under the standing orders of the establishment.

Apprentice as per Apprentice Act, 1961 means-

1. A person who is undergoing a course of training in any industry or establishment with a view to acquiring the necessary skills and knowledge to be qualified for employment in that industry or establishment.

2. An apprentice is typically a person who has completed their basic education and is seeking practical training and experience in a particular trade or profession. Apprenticeships are structured training programs that provide a combination of on-the-job training and classroom instruction, with the goal of preparing the apprentice for a specific occupation.

4.Salary/Wages-

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—

1. the cash value of any food concession;

2. 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;

3. Any presents made by the employer.

5.Exempted Employee/Establishment-

Section 17 of EPFO & MP Act, 1952 provides the following powers to the Central Government-

• Deciding the rate of interest payable to the members of the EPFO on their provident fund deposits.
• Prescribing the terms and conditions for eligibility to the EPF scheme.
• Directing the EPFO to take measures to ensure the proper administration of the fund, such as improving the efficiency of the fund management system or increasing the coverage of the EPF scheme.
• Exempted employee means a person who is not required to contribute to the EPF Scheme.
• Exempted Establishment means which are not required to comply with the provisions of the EPF scheme, including the requirement to contribute to the EPF scheme on behalf of their employees. It might due to threshold limit or they provide any other provident fund opportunities maintained by them.

B- REGISTRATION REQUIREMENT.

As per the Employee Provident Fund and Miscellaneous Provisions Act, 1952 (EPF Act), registration is required under the following circumstances:

1. If the organization has 20 or more employees: Any organization employing 20 or more employees must register under the EPF Act within one month of becoming eligible.

2. If the organization is engaged in certain specified industries: Any organization engaged in any of the industries specified in Schedule 1 of the EPF Act, irrespective of the number of employees, must register under the EPF Act.

3. If the organization is already registered under the EPF Act: Any new organization that takes over an existing organization that is already registered under the EPF Act, must obtain its own separate registration under the EPF Act.

C-COMPLIANCE REQUIREMENT AS PER EPFO & MP ACT, 1952.

• Registration – Already discussed.
• Schemes notified –

1. Employees’ Provident Fund (EPF) Scheme, 1952: The EPF Scheme is the main scheme under the EPF & MP Act, which provides for the accumulation of provident fund and other related benefits for employees. Present contribution rate is 12%.

2. Employees’ Pension Scheme (EPS), 1995: The EPS provides for a pension to employees who have completed 10 years of service. The contribution to the EPS is 8.33% of the employer’s share of contribution towards the EPF.

• Employees’ Deposit Linked Insurance (EDLI) Scheme, 1976: The EDLI Scheme provides for life insurance coverage to the employees, with the premium paid by the employer. The current rate of contribution is 0.5% of the employee’s wages.

• Filing of returns-

Employers are required to file monthly returns of contributions, along with details of employees and their salaries, with the EPFO. Due date is 15^th of the next month.

• Payment of dues-

Employers are required to make timely payment of EPF contributions and other dues such as administrative charges, damages, and interest.

Other explanation for the purpose of practical expediency-

There are three scenarios in which EPF Contribution depends-

Scenario- 1

• Employees salary is less than 15,000 say – 14,000

Contribution would be as follows-

• EPF Employee- 14,000 *12% = 1680
• EPF Employer – 14,000*3.67%= 514
• EPS Employer = 14,000* 8.33%= 1166
• EDLI – 14,000*.05%= 70
• EPF Admin- 14,000*= 70

Scenario- 2

Employee’s salary is more than 15000, say 16000

In case the employer opts for Minimum EPF, then the calculation is not done on the employee’s current salary, rather on the minimum salary – that is – 15000INR.

The employee will contribute 12 % of 15000 = (1800 INR).

Whereas, the employer will contribute –

– 3.67% of 15000 to EPF

– 8.33% of 15000 to EPS

– 0.5% of 15000 to EDLI

– 0.5% of 15000 to EPF Admin charges.

Scenario- 3

Employee’s salary is more than 15000, say 16000

Employer has two options here-

If employer opts for Minimum EPF-

• EPF Employee- 15,000 *12% = 1800
• EPF Employer – 15,000*3.67%= 550
• EPS Employer = 15,000* 8.33%= 1250
• EDLI – 15,000*.05%= 75
• EPF Admin- 15,000*= 75

If employer opts for full EPF-

• Employees contribution- 16,000*12%= 1920

Here again employer has two options –

• The employer can contribute 12% of 15,000 on the minimum salary.
• The employer can contribute 12% of 16,000 but EPS contribution will be restricted to 8.33% of 15,000 and remaining will go to EPF.

D-MAINTENANCE OF RECORDS AND REGISTERS

Following documents are required to be maintained by the employers-

1. Attendance Registers: Employers are required to maintain attendance registers or muster rolls that record the attendance of employees.

2. Salary Registers: Employers are required to maintain salary registers that contain details of the employees’ wages and dearness allowance (DA).

3. PF Register: Employers are required to maintain a PF Register in Form No. 2, which contains details of employees such as name, address, date of joining, wages, and contribution towards the EPF.

4. Nomination Forms: Employers are required to obtain Nomination Forms in Form No. 2 (Revised) from the employees, which contain details of the nominees who will receive the benefits of the EPF in case of the employee’s death.

5. Contribution Cards: Employers are required to maintain Contribution Cards in Form No. 3A, which contain details of individual employees’ contribution towards the EPF.

6. Challans: Employers are required to maintain Challans in Form No. 12A, which contains details of the EPF contributions remitted by the employer.

7. Inspection Book: Employers are required to maintain an Inspection Book in Form No. 11, which contains details of inspections conducted by the EPF authorities.

8. Inspection Reports: Employers are required to maintain copies of Inspection Reports issued by the EPF authorities.

Period of retention –

• Annual PF Statement and PF Slip need to be maintained for a period of 7 years from the date of the last entry.
• PF Returns, Accounts Books, and other relevant documents need to be maintained for a period of 10 years from the date of the last entry.
• PF Register, Inspection Book, Contribution Cards, Challans, Attendance Registers, Salary Registers, Nomination Forms, and Inspection Reports need to be maintained for a period of 75 years from the date of entry.

E-PENAL PROVISIONS IN CASE OF NON-COMPLIANCE

The penal provisions for non-compliance are as follows:

1. Delay in Payment of Contributions: If an employer fails to deposit the PF contributions within the prescribed time, they are liable to pay interest at the rate of 12% per annum. In addition to the interest, they may be penalized by the EPF authorities with damages at the rate of 5% to 25% per annum, depending on the delay in payment.

2. Non-Submission of Returns: If an employer fails to submit the PF returns within the prescribed time, they may be penalized with a fine of Rs. 5,000 to Rs. 25,000, depending on the delay in submission.

3. Non-Maintenance of Records: If an employer fails to maintain the prescribed records and registers, they may be penalized with a fine of Rs. 5,000 to Rs. 10,000.

4. Non-Payment of Admin Charges and Inspection Fees: If an employer fails to pay the administrative charges or inspection fees, they may be penalized with a fine of Rs. 500 to Rs. 5,000.

5. Non-Compliance with Other Provisions: If an employer fails to comply with any other provision of the Act, they may be penalized with a fine of Rs. 1,000 to Rs. 5,000.

In addition to the penalties mentioned above, repeated non-compliance with the provisions of the Act may result in prosecution and imprisonment of the employer. Therefore, it is advisable for employers to ensure compliance with the provisions of the EPF & MP Act to avoid any legal or financial consequence.