HERE ARE SOME THINGS YOU MUST KNOW….
In the landscape of social security schemes in India, Provident Fund (PF) and Employee State Insurance Corporation (ESIC) play pivotal roles in ensuring the welfare of employees. While both schemes aim to provide financial security, they operate distinctly in terms of eligibility criteria, contributions, benefits, and administration. This article seeks to elucidate the fundamental aspects of PF and ESIC, shedding light on their individual characteristics.
Provident Fund (PF):
A. Meaning
The Provident Fund (PF) stands as a retirement benefit scheme extended by employers to their employees, governed by the Employees’ Provident Fund Organization (EPFO). This arrangement mandates contributions from both the employer and the employee, calculated as a percentage of the employee’s salary, towards the fund. Upon retirement, resignation, or in the event of the employee’s demise, the accumulated amount, coupled with interest, becomes accessible for withdrawal.
A PF return is a formal document filed by employers with the EPFO, delineating the contributions made to the fund for each employee. It includes comprehensive details such as the employee’s basic salary, dearness allowance (DA), and other allowances. This return serves to document the contributions from both parties, ensuring compliance with regulatory requirements, and fosters transparency and accountability in the management of provident funds.
B. Eligibility: –
EPF is a compulsory and contributory fund for Indian organizations under “The Employees’ Provident Fund and Miscellaneous Provisions Act 1952”. In the Employees’ Provident Fund (EPF) scheme, both the employee and the employer are required to contribute an equal amount, set at 12% of the employee’s monthly salary. EPF contributions are mandatory for employees whose basic salary is up to Rs. 15,000 per month. Employees with a salary above Rs. 15,000 can choose to contribute voluntarily.
C. Registration: –
A company with 20 or exceeding employees is needed by law to register in the EPF scheme within one month of attending the minimum strength of 20 employees. The small companies which do not own minimum strength would register themselves.
To initiate PF registration, a company needs to secure the following documentation:
1. Consent in Form 11 from every employee, which must include the employee’s signature.
2. EPF specimen sign card with three signatures from the Director in the name of the employer.
3. Specific documents, which include company letter head, copy of PAN Card and Aadhaar Card of employer and company, rental agreement or ownership proof of the company premises, list of employees with father’s name, designation, and salary, copy of GST certificate, list of machinery if it is a manufacturing enterprise, employees’ respective Aadhaar Card, bank account details, and mobile number, etc.
The registration process typically spans 10-15 days, after which login credentials are issued for streamlined compliance.
Upon PF implementation, the company is advised to ensure the salary structure of the employees incorporates provident fund components, which is a cost-to-company (CTC), and communicate any changes to employees.
D. Components covered: –
For PF contribution, the salary comprises of fewer components:
1. Basic wages,
2. Dearness Allowances (DA),
3. Conveyance allowance and
4. Special allowance.
The employer’s monthly contribution is restricted to a maximum amount of Rs 1,800. Even if the employee’s salary exceeds Rs 15,000, the employer is liable to contribute only Rs 1,800 (12% of Rs 15,000).
Contribute 12 percent of basic salary: Ideal for higher salary earners aiming to maximize contributions.
For international workers, wage ceiling of Rs 15,000 is not applicable.
E. Tax Benefits:
Contributions are eligible for tax deductions under Section 80C of the Income-tax Act, 1961.
F. Withdrawal rule: –
PF account holders can withdraw up to 75% of their total balance if they have been unemployed for more than a month. The offline withdrawal process typically takes up to 20 working days, while online withdrawals are processed within 3 working days.
Withdrawal of the full or partial PF balance is not permitted while the account holder is employed. However, full withdrawal is allowed if the individual has been unemployed for at least 2 months, or if the joining date at a new job is more than 2 months from the last working day at the previous employer. If an employee withdraws ₹50,000 or more within 5 years of opening a PF account, a TDS of 10% applies with a valid PAN card, or 30% without a PAN card.
Employee State insurance Corporation (ESIC):
A. Meaning: –
Employee State Insurance (ESI) is a comprehensive social security scheme in India, overseen by the Employee State Insurance Corporation (ESIC), offering a range of benefits to employees. Apart from medical benefits, disability benefits, and maternity benefits, ESIC extends various other benefits aimed at safeguarding the welfare of workers.
Established with the overarching goal of safeguarding the welfare of employees, ESI stands as one of the most widely embraced integrated need-based social insurance schemes in India. At its core, the ESI scheme goes beyond mere financial compensation by also extending vital healthcare benefits. This dual approach ensures that employees not only receive crucial monetary assistance but also gain access to quality medical services when needed. Such benefits play a pivotal role in alleviating the financial burden and mitigating the adverse impacts of unexpected events on the lives of employees.
B. Eligibility: –
The Employee State Insurance (ESI) scheme casts a wide net, encompassing various types of establishments, ranging from corporates and factories to restaurants, cinema theatres, offices, medical institutions, and more. These establishments, referred to as Covered Units, play a pivotal role in ensuring the widespread applicability and effectiveness of the ESI scheme in safeguarding the welfare of employees across diverse sectors.
The criteria for Covered Units –
a. All units that are covered under Factory Act and Shops and Establishment act are eligible for ESI. – Where 10 or more people are employed irrespective of their monthly earnings.
b. Units which are located in the scheme-implemented areas. The government plans to implement ESI across the entire country by 2022 so all units will be considered as Covered Units.
C. Registration
All the establishments covered under the ESI act and all the factories that employ more than 10 employees and pay wages below Rs. 21,000 per month (Rs. 25,000 for employees with disability) must register with ESIC and contribute towards the ESI scheme. They must register with the ESIC within 15 days from the time the organisation is covered under the ESI Act.
Employers who employ workers covered under the ESI scheme are required to register with the ESIC. The registration process typically involves submitting an application along with necessary documents such as company registration certificate, PAN card, address proof, and details of employees.
Once the employer is registered, they are responsible for registering their employees with the ESIC.
D. Components Covered: –
For ESI calculation, the salary comprises of all the monthly payable amounts such as
a. Basic pay,
b. Dearness allowance
c. City compensatory allowance
d. House Rent Allowance (HRA)
e. Incentives (including sales commissions)
f. Attendance and overtime payments
g. Meal allowance
h. Uniform allowance
i. Any other special allowances
E. Withdrawal rule: –
ESI scheme is an insurance scheme in which the employees and employers provide the premiums in form of contributions. You can avail of the ESI fund amount for medical use or other benefits provided under the ESI scheme only, and it cannot be withdrawn for personal use. The ESIC funds can only be claimed against various ESIC benefits provided under the ESI scheme.
Conclusion: In conclusion, PF and ESIC schemes play indispensable roles in ensuring the welfare of employees in India. While PF focuses on retirement benefits, ESIC offers a broader spectrum of social security measures. Understanding the nuances of both schemes is crucial for employers and employees alike, ensuring compliance and fostering financial security.
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Authors: Kinjal Shah | Associate Consultant | blogs@bilimoriamehta.com | +91 99305 98581
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