Changes in EPF due to COVID 19

Introduction

Due to COVID-19 pandemic and the lockdown being in force across the country and the Central Government after making necessary inquiry decided to provide liquidity in the hands of employers and employees. Hence, the Ministry of Labour and Employment issued a notification dated March 27, 2020 (“Original Notification”), providing statutory provident fund contribution under the Employees’ Provident Funds and Miscellaneous Provident Act, 1952 (“EPF Act”) by both employers and employees to be reduced to 10 percent (10%) of basic salary from the existing 12 percent (12%). The Original Notification also allowed a non-refundable advance from the Employee Provident Fund (EPF) account of a member not exceeding the basic salary and dearness allowances of that member for three (3) months or up to seventy five percent (75%) of the amount standing to their credit in the fund, whichever is less. The Finance Minister Nirmala Sitharaman announced on May 13, 2020 as a part of the COVID - 19 financial package extended the aforesaid aspects of the Original Notification till July, 2020 and the same was notified vide and amendment dated May 18, 2020 extended (“Subsequent Notification”).

Eligibility and effect

The Subsequent Notification reiterated the stance of the Government that this reduction of the EPF contributions will be applicable for workers who are not eligible for twenty four percent (24%) EPF support under the Pradhan Mantri Garib Kalyan Yojana (PMGKY) for three (3) months. The Central Government would contribute the entire twenty four percent (24%) of EPF contributions till August, 2020 as was stated vide a Government order. The PMGKY includes those establishments that have up to hundred (100) employees and ninety percent (90%) of who earn up to fifteen thousand rupees (Rs. 15,000) monthly salary.

In case an employee is working in an exempted establishment, the Employees Provident Fund Scheme, 1952 (“EPF Scheme”), formulated under the EPF Act provides that any amendment to the EPF Scheme, 1952, which is more beneficial to the employees becomes applicable to exempted establishments. Therefore, the employees of an exempted establishment can withdraw from their EPF accounts maintained with the EPF Trust of the establishment by making application to the EPF Trust.

The Employees Provident Fund Organization (EPFO) stated that this would increase the take home pay of 4.3 crore organised sector employees’ and reduce the liability of six point five 6.5 lakh employees reeling under liquidity crunch under lockdown to contain COVID-19. The employees’ take-home salaries would increase while the employers’ liabilities would reduce for May, June and July of 2020 as the Labour Ministry had notified a two percent (2%) cut in the EPF contribution rate on May 18, 2020.

As of the reduction, the employer’s liability reduced by two percent (2%) of salary of his employees so that they do not suffer a loss as a result of the continuing contribution towards the EPFO. For example, instead of the initial take home pay after a reduction in statutory rate of contributions of twelve percent (12%) from fifteen thousand rupees (INR 15,000) being thirteen thousand two hundred rupees (INR 13,200) it may be increased to thirteen thousand five hundred rupees (INR 13,500). The employer’s liability to contribute to the employees’ EPF has reduced from eight hundred rupees (INR 800) to five hundred rupees (INR 500).

The Original Notification also amends the EPF Scheme, 1952 by inserting sub-para (3) under para 68L of the EPF Scheme, 1952 to provide for non-refundable advance to EPF members not exceeding the basic salary and dearness allowances for three (3) months or upto seventy five per cent (75%) of the amount standing to member’s credit in the EPF account in the event of outbreak of epidemic or pandemic. The pandemic withdrawal adds to a select list of events under which subscribers are allowed non-refundable withdrawal. The request of withdrawal under the new pandemic rules of the pension fund will be honoured within three (3) days.

Additional changes

The EPFO has declared that they have released eight hundred and INR 868 crore pension along with INR 105 crore arrears on account of restoration of commuted value of pension. The higher pension benefit will be restored after fifteen (15) years from the date of receiving commuted pension at the time of retirement. This means an individual who retired on April 1, 2005, would be eligible to receive the benefit of higher pension after fifteen (15) years i.e. from April 1, 2020. The provision for pension commutation of pension was withdrawn by the EPFO. Now, the facility has been restored for all those who opted for it on or before September 25, 2008. An EPFO panel had recommended for amendment in Employees' Pension Scheme, 1995 (EPS-95) for restoration of commuted value of pension to pensioners after fifteen (15) years of drawing commutation. This is a historical step for the benefit of pensioners as prior to this under EPS-95, members were allowed to commute one-third (1/3) of their pension for ten (10) years, which was restored after fifteen (15) years.

As further bifurcation, the ten percent (10%) on the employer’s side will be bifurcated as follows – (i) 8.33% of the contribution of the employer’s contribution would go to the EPS-95; (ii) 1.67% EPF Scheme; (iii) 0.5% would be taken for Employees’ Deposit Linked Insurance Scheme (EDLI) contribution; and (iv) 0.5% as administrative charges. All, of the ten percent (10%) of the employee’s contribution would go towards the EPF Scheme.

Considering the difficulty faced by the establishments in the timely deposit of contributions or administrative charges due for any period during the lockdown, the EPFO has decided that such delays due to operational or economic reasons shall not be treated as default and penal damages should not be levied for such delay. They have also done away with any administrative charges for EDLI.


This update is by Rohitaashv Sinha, Advocate & Associate Partner at Agarwal Jetley & Co., Advocates & Solicitors. Contact: Email: rohitaashv.sinha@agarwaljetley.com or Mob: (+91) - 9999565393