EPF

From Indiapensions

ricpasdelr zelrolc4tou letosittr The Employees Provident Fund (EPF) is the first of the three schemes designed under the EPF&MP Act 1952. It is primarily a defined contribution scheme, which pays a lumpsum benefit to its members.

Table of contents

1 Applicability 2 Operational framework 2.1 Contributions 2.2 Benefits 2.3 Investment 2.4 Administration 2.5 Exemptions 3 Defaults

Applicability

The EPF&MP Act, 1952 is applicable to all establishments engaged in the 182 specified industries employing twenty or more people earning upto Rs.6500 p.m. The Act does not apply to co-operative societies employing less than 50 persons.The rule under EPFO is that only those institutes that are hitherto being provided pension either by the State or the Central Government are not under the aegis of the EPFO. However this Act applies only to members earning upto Rs.6500. Those members above that wage, are exempt from the PF rules of contributions. The coverage of the EPF has been steadily increasing over the years. The regional distribution of the EPF is not uniform and found to be skewed towards the more prosperous states.

Operational framework

Contributions

The EPF requires the employers and employees to contribute an amount equal to 12% of the employees' salary (consisting of basic wage, with dearness allowances, retaining allowance and cash value of food concessions). In some cases the rate of contributions for both the employers and the employees have been fixed at an lower level equalling 10% of the employees' salary, these are namely,

1. An establishment that has been declared as a sick unit by the Board of Industrial and Financial Re-construction.
2. An establishment that has accumulated financial losses exceeding its net worth for the given financial year.
3. Any establishment in the a) Jute industry b) Beedi industry c) Brick industry d) Coir industry other than spinning sector and Guar gum factories.

If an employee so desires he can contribute at a rate higher than 12% (10% where applicable) of his salary. However in such a case the employer is not obliged to contribute at such higher rates.

During 2004-05, the EPF received Rs. 9613.11 crores as contributions.

Benefits

The primary benefit of the EPF is a lumpsum withdrawal of the accumulations at the time of retirement. The accumulation of a member's balance is facilitated by the statutory rate of interest declared by the government every year. The interest rate for the past ten years had varied from 12% to 9.5%. In January 2006, the government further reduced the interest rate to 8.5% for the current fiscal year.

The EPF&MP Act, 1952 allows for withdrawals and advances prior to retirement in certain circumstances that are different forwithdrawals and advances. The EPF has witnessed large amounts of withdrawals, which lead to very small balances at the time of retirement. The policy of early withdrawals defeats the purpose of the provident fund as a means of old age income security.

The full accumulations are paid in the following circumstances

1. On retirement from service after attaining 55 years of age.
2. On retirement on account of permanent and total incapacity for work due to bodily or mental infirmity.
3. Migration from India and permanent settlement abroad.
4. Termination of service in the case of mass or individual retirement.

In the case of death of a member before the amount standing to his credit in the fund has become payable, the amount is paid to the person nominated by the member. If the member has a family at the time of making the nomination, the nomination has to be in favour of one or more members of the family. If the member does not have a family at the time of nomination, he can nominate one or more person. However if he subsequently aquires a family, he will be required to make a fresh nomination in favour of one or more family members.

The EPF settled 2408797 claims in 2004-05.

Investment

The funds have to be invested as per the directions given by the Central Government in the securities listed in Section 20 of the Indian Trusts Act, 1882. The investment pattern is prescribed by the Ministry of Finance and is then approved by the Ministry of Labour. (See EPF investments)

Administration

The scheme is administered by the Employees' Provident Fund Organisation and is governed by the EPF&MP Act, 1952. The EPF&MP Act, 1952 provides for the administration of the scheme by a Board of trustees referred to as the Central Board. The Central Board consists of the following members:

1. A Chairman and a Vice Chairman appointed by the Central Government.
2. Central Provident Fund Commissioner.
3. Up to 5 members appointed by the Central Government from amongst its officials.
4. Up to 15 members representing State Governments appointed by the Central Government.
5. 10 persons representing employers of the covered establishments, appointed by the Central Government after consultations with organisations of employers.
6. 10 persons representing employees of covered establishments, appointed by Central Government after consultation with employees' organisations.

The Central Government also appoints an executive committee and a regional committee to assist the Central Board in its operations.

The EPFO covers the administrative expenses by levying administrative charges on the employers of the covered establishments. As of 2002-03 every employer has to pay administrative charges at the rate of 1.10% of emoluments towards the provident fund.

Exemptions

An establishment can be exempt from the EPF if the employees of the establishment are covered by a provident fund scheme that provides benefits at least at par with those provided under the EPF. The exempted establishments run their own schemes, typically called exempt funds but they remain covered under the EPF&MP Act, 1952 and are subject to a number of terms and conditions mentioned in the Act. One important condition here is that the contribution rates under the provident fund rules of any establishment should not be less than those under the EPF. There are other conditions in respect of maintenance of accounts, submission of reports that the exempted establishments are expected to follow.

Defaults

The EPF&MP Act, 1952 has several provisions which give the EPFO the authority to deal with employers who default in making payments (either contributions or charges) due to the EPFO. For example, if an employer defaults in complying with the rules of the EPFO, he is liable to pay a simple interest at the rate of 12% on the amount due for the period between the date when the amount was due and the date when the payment was actually made. Apart from this he has to pay damages at the following rates

Period of default	Rate of damages as a percent of arrears
Less than two months	17
Above two months but less than four months	22