News Alert 23 November, 2012

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Updated FAQs released on Indian provident fund and pension scheme applicable to International workers

In brief

In October 2008, the Indian Ministry of Labour and Employment (MLE) made it compulsory for international workers (IWs) to contribute to Indian social security schemes. Thereafter, several changes were made and clarifications were provided through Frequently Asked Questions (FAQs).

The Employees Provident Fund Organisation (EPFO) has recently released the updated FAQs¹ (the earlier FAQs were issued on 25 May 2012) providing additional clarifications on recent changes made by the MLE since issue of last FAQs.

1 Source : http://www.epfindia.com/IntWorkersNew/IWU_UpdtdFAQs_19112012.pdf

Key additional clarifications include the following:

• The term ‘excluded employee’ has been expanded to include IWs from a country with which India has entered into a bilateral comprehensive economic agreement (BCEA) prior to 1 October 2008 and these IWs are contributing to the social security programme of their home country. (FAQ no 3)

• Early withdrawal of accumulated provident fund (PF) money allowed to IWs coming from Social Security Agreement (SSA) countries on cessation to be an employee in an establishment covered under the Employees Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act). (FAQ no 24)

• Provision of inoperative accounts is not applicable to IWs. (FAQ no 23)

Sharing insights

News Alert

23 November, 2012

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2 For a quick reference, the complete updated FAQs along with our comments are summarised as follows:

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FAQs Clarifications Our comments

International worker

1. Who is an IW? An IW may be an Indian worker or a foreign national. The following criteria is applicable:

• Any Indian employee working or having worked abroad in a country with which India has entered into an SSA; and being eligible to avail the benefits under social security program of that country, by virtue of the eligibility gained or going to gain, under the said agreement.

• Any employee other than an Indian employee, holding other than an Indian passport working for an establishment in India to which the EPF Act is applicable. [FAQ no 1]

No change from the earlier FAQ.

2 Is an Indian worker holding certificate of coverage (COC), an IW?

Merely holding the COC does not make an employee an IW. He becomes an IW only after being eligible to avail the benefits under SSA of any country. After obtaining COC, the employee is exempted from contributing to the social security systems of the foreign country with which India has a SSA. Hence, he or she is not eligible to avail the benefits under the social security program of that country. [FAQ no 2]

3. How long can an Indian employee retain the status of IW?

An Indian employee attains the status of IW only when he or she becomes eligible to avail benefits under the social security program of other country by virtue of the eligibility gained or going to gain, under the said agreement on account of employment in a country with which India has signed a SSA. He or she shall remain in the status till the time he or she avails the benefits under the employees provident fund (EPF) scheme. In other words, once an IW, always an IW. [FAQ no 22]

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4. Who is an ‘excluded employee’ under these provisions?

‘Excluded employee’ means

a detached IW contributing to the social security program of the home country and certified as such by a detachment certificate for a specified period in terms of the bilateral SSA signed between that country and India, or, an IW, who is contributing to a social security program of his or her country of origin, either as a citizen or a resident, with whom India has entered in to a bilateral comprehensive economic agreement containing a clause on social security prior to 1 October 2008, which specifically exempts natural persons of either country to contribute to the social security fund of the host country (e.g. para 4 of Article 9.3 of CECA between India and Singapore provides: “Natural persons of either party who are granted temporary entry into the territory of the other country shall not be required to make contributions to social security funds in the host country) [FAQ no 3]

The MLE issued a notification² wherein the term ‘excluded employee’ was expanded to include IWs who are deputed from a country with which India has entered into a BCEA prior to 1 October 2008. Such IWs now qualify as excluded employees, if the following conditions are met.

• The IW is contributing to the social program of his or her country, either as a citizen or resident.

• The relevant BCEA contains a clause on social security which specifically exempts natural persons of either country to contribute to the social security fund of the host country.

The FAQ on this change has been included now.

5. Are Indian employees working abroad and contributing to the social security scheme of that country with which India has an SSA covered for PF in India or treated as excluded employees?

No, only employees working in establishments situated and covered in India may be covered in India. [FAQ no. 17]

6 Are Indian employees working abroad and contributing to the social security scheme of that country with which India does not have an SSA coverable for PF in India?

If an Indian employee is employed in any covered establishment in India and sent abroad on posting, he is liable to be a member in India as a domestic Indian employee, if otherwise eligible. He is not an IW. [FAQ no. 18]

2 F.No S-35025/ 09/ 2011/ Ss – II dated 24 May 2012

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4 7. Are IWs employed directly by an Indian

establishment coverable?

IWs employed directly by an Indian establishment will be covered under the Act as IWs. [FAQ no 20]

8. Are IWs employed in India and being paid in foreign currency coverable?

Yes, such nationals drawing salary in any currency and in any manner are to be covered as IWs. [FAQ no 19]

9 Whether the IWs will earn interest even after cessation of service after three years also in view of provisions of inoperative accounts?

Since the provisions of inoperative accounts are not applicable in case of IWs, they will continue to earn interest till the amount of PF is finally withdrawn. [FAQ no 23]

This FAQ clarifying that provisions relating to inoperative accounts are not applicable to IWs is quite significant. IWs will continue earning interest on their PF accounts until they actually withdraw money. This is particularly beneficial to those IWs from SSA countries who have left India more than three years back and have not withdrawn their PF money. The EPFO needs to clarify if this, perhaps, is not the intention.

Employer or establishment

10. Which category of establishments shall take cognisance of these provisions?

All such establishments covered or coverable under the EPF Act

(including the exempted establishment under section 17 of the Act) that employs any person falling under the category of IW shall be covered under the new regulations. [FAQ no 5]

Social security agreement (SSA)

11. What is an SSA? An SSA is a bilateral instrument to protect the social security interests of workers posted in another country. Being a reciprocal arrangement, it generally provides for avoidance of double coverage. [FAQ no 13]

The words ‘equality of treatment’ as mentioned in the definition earlier has been removed.

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12. What are the provisions covered in an SSA? Generally a SSA covers three provisions. They are as follows:

•••• Detachment: It applies to employees sent on a posting in another

country, provided they comply with the social security system of the home country.

•••• Exportability of pension: The provision for directly paying

pension benefits without any reduction to the beneficiary choosing to reside in the territory of the home country and also to a beneficiary choosing to reside in the territory of a third country.

•••• Totalisation of benefits: The period of service rendered by an

employee in a foreign country is counted to determine the

‘eligibility’ for benefits, but the quantum of payment is restricted to the length of service, on pro-rata basis.[FAQ no 14]

No change from earlier FAQ.

13. What is the status of the SSA? Eight SSA, in respect of Belgium, Germany, Switzerland, Denmark, Luxembourg, France, South Korea and the Netherlands have been made effective 1 September 2009, 1 October 2009, 29 January 2011, 1May 2011, 1 June 2011, 1 July 2011 1 November 2011 and 1 December, 2011 respectively. [FAQ no 15]

14. Should the eligible employees from any country other than the countries with which India has entered into an SSA contribute as an IW?

Each and every worker from a country not having either SSA or BCEA (referred in answer for FAQ 3) with India has to be covered

mandatorily.[FAQ no 16]

In view of expanding the definition of excluded employee by including the IWs from BCEA countries, the clarification has been provided (also refer to our comments on FAQ at s no 4).

Enrolment or compliance

15. Who shall become the members of the fund?

The following can become members:

•••• Every IW, other than an ‘excluded employee’ from 1 October 2008

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•••• Every excluded employee, on ceasing the status – from the date he

ceases to be an excluded employee. [FAQ no 4]

16. Is there a minimum period of days of stay in India which the employee can work in India without triggering PF compliance?

No minimum period is prescribed. Every eligible IW has to be enrolled from the first date of his or her employment in India. [FAQ no 10]

Contribution

17. What is a ‘monthly pay’ for calculating contributions to be paid under the EPF Act?

The contribution shall be calculated on the basis of monthly pay containing the following components actually drawn during the whole month whether paid on a daily, weekly, fortnightly or monthly basis:

• Basic wages

• Dearness allowance (all cash payments by whatever name called paid to an employee on account of a rise in the cost of living)

• Retaining allowance

• Cash value of any food concession [FAQ no 8]

18. Whether PF rules will apply to an employee if his or her salary is paid outside India?

The PF regulation will apply irrespective of where the salary is paid. The PF contributions are liable to be paid on wages, dearness allowance, and retaining allowance, if any, payable to the employee by the establishment in India. [FAQ no 6]

It is rewording of the earlier clarification.

19. What will be the portion of salary on which PF will be payable in the case of an

individual has multiple country

responsibilities and spends part of his or

The contribution is payable on the total salary of the employee. It includes wages payable by an establishment in India even for responsibilities outside the country. [FAQ no 9]

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her time outside India?

20. Is there a cap on the salary up to which the contribution has to be made by both the employer as well as the employee?

There is no cap on salary for PF contribution to be payable by the IWs and their employers. [FAQ no. 11]

21. Is there a cap on the salary up to which the employer’s share of contribution has to be diverted to the Employees Pension Scheme (EPS)?

No there is no cap on the salary up to which the employer’s share of contribution has to be diverted to EPS, 1995 and the same is payable on the total salary of the employee. [FAQ no 12]

22. Whether PF will be payable only on the part of salary paid in India in the case of split payroll?

Contribution is payable on total salary earned by the employee in the establishment covered in India. [FAQ no 7]

Employees’ Deposit Linked Insurance Scheme (EDLI) 23. Is there a cap on the salary up to which the

contribution has to be made under the EDLI Scheme, 1976 by the employer?

Yes, the cap on the salary is INR 6,500. [FAQ no 25] No change from the earlier FAQ.

Benefit and withdrawal of contribution 24. Under what circumstances accumulations

in the fund are payable to an IW?

The full amount standing to the credit of a member’s account is payable in the following circumstances:

Persons covered under SSA:

On ceasing to be an employee in an establishment covered under the Act.

Persons NOT covered under SSA:

• On retirement from service in the establishment at any time after 58

FAQ no 24 and 25 of earlier FAQs dated 25 May 2012 have been combined and

reworded.

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• On retirement on account of permanent and total incapacity to work due to bodily or mental infirmity, duly certified by the authorised medical officer. [FAQ no 24]

25. What is the criterion for receiving the withdrawal benefit for services less than 10 years under the EPS, 1995?

Only those employees covered by a SSA will be eligible for withdrawal benefit under the EPS, 1995, who have not rendered the eligible service (i.e. 10 years) even after including the totalisation benefit if any as may be provided in the said agreement. In all other cases of IWs not covered under SSA, withdrawal benefit under the EPS, 1995 will not be available.

[FAQ no 21]

Our comments

FAQs by EPFO is an important tool to clarify the doubts and provide guidance on various matters as contained in the Indian social security scheme applicable to IWs.

Although, in the updated FAQs, some of the matters have been clarified but there are still a few areas such as withdrawal of PF through employer or whether IWs can receive the PF money directly into their bank account, etc. which needs to be clarified. Hopefully, the EPFO will come out with further clarifications sooner rather than later.

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