Track provident fund default by your employer

Enrol for universal account number and use the Umang app to keep a tab

The number of notices to employers for defaulting on provident fund (PF) payments is on the rise. The Employees' Provident Fund Organisation (EPFO) has started using technology extensively to track provident fund payments, according to human resource (HR) consultants.

The retirement body is using data mining and data analytics to zero down on defaulters. “Every month the EPFO system does an area-wise analysis of employers’ contributions. If there are discrepancies or the contribution is low, EPFO looks at the reasons and sends notices,” says Prakash Rao, founding member and chief experience officer, PeopleStrong.

Defaults happen due to a variety of reasons. The company could be making losses. They can also happen due to employer’s negligence or outright fraud on his part. Earlier, it was difficult for an employee to find out whether the employer has been depositing his share of PF contribution. With the introduction of Universal Account Number (UAN), it’s now easy for a salaried person to keep a tab on his employee provident fund (EPF) account. Employees can now complain immediately. The retirement body, however, may deal with each default on a caseby-case basis.

Enrol for universal account number: For an individual joining the workforce and earning a basic salary of over ~15,000, enrolling for PF is optional. The employer may also choose not to give the EPF benefit. But once enrolled, the company or the salaried employee cannot opt out.

Earlier, employees had to rely on the annual statement slip that their employer provided or apply to the regional provident fund commissioner (RPFC) to know the details. Now, with UAN, an employee can easily find out whether his employer has deposited the PF or not by visiting the UAN website or through Umang app. If your employer doesn’t deposit the PF, you can approach the labour department and file a complaint. According to HR consultants, the labour department has of late started putting pressure on employers to comply and it even mediates. Even if your employer runs a private PF trust, you can still get the information through UAN.

Wilful default by employer: According to regulations, every employer is supposed to deposit the PF money with the EPFO by the 15th of the next month. Even if it misses one payment by the deadline, it is a default.

Sometimes a business starts making a loss. Companies start delaying salaries and also default on depositing EPF money. HR consultants say that EPFO may give a few months’ leeway to companies in financial troubles to comply. But before giving any further time to comply, the retirement body studies the company’s financial situation. It goes through the books of accounts and bank balances to ascertain that the financial troubles are genuine. If the company still doesn’t comply, EPFO can initiate proceedings.

There have also been many cases where employers hold back the money deliberately. The penal interest that the EPFO levies is low. Some employers invest the money in bank fixed deposits or mutual funds to earn higher returns. After a few months, they remit the money as arrears and pay the penal interest. To discourage such practices, EPFO now levies “damages” along with other penalties. “It can be as high as 25 per cent of the default amount,” says Divya Baweja, partner, Deloitte India.

If a company diverts the money to defraud employees, EPFO comes down heavily on such employers. “In such cases, the retirement body has in the past got court orders to attach the properties of promoters, and employers have even been sent to judicial custody,” says Abhishek A Rastogi, partner, Khaitan & Co. He points out that there have also been cases where an employee and an employer got into a dispute. The latter stopped contributing to PF and/or diverted the money after the relationship went sour. Such employers have faced judicial custody when the employee approached the EPFO and courts.

Even unicorns have defaulted: Many start-ups default during their growth phase. From being small outfits, when they suddenly experience high growth, compliances take a back seat. “Almost all the Indian unicorns have featured in the EPFO’s defaulters list at some point of time,” says Rao. When start-ups are small, they don’t hire proper HR consultants. They start complying only when they hit a critical mass.

According to law, any company that has over 20 employees needs to start contributing to EPF. Tax experts and lawyers say that an entrepreneur should not delay EPF compliance as, in extreme cases, this can lead to shutting down of the business.