Is Your PF Money Safe?

Though many companies are defaulting on PF deposits, the problem is far from alarming.

Though many companies are defaulting on PF deposits, the problem is far from alarming

Is your provident fund contribution safely invested for you to withdraw when it is required the most – at retirement? Well, recent reports and a look at the annual report of the Employees’ Provident Fund Organisation –the body that sets the rules for EPF – suggest that your provident fund money may not be as safe as you thought. Many employers – around 7,700 as on March 2015 – do not deposit the money deducted from their employees in the EPFO account. However, though it is alarming, there is no reason for pushing the panic button, just yet.

The defaulting companies account for less than 1 per cent of the 860,000 firms enrolled with the EPFO. Besides, most default cases that the EPFO has reported in its annual report are of less serious nature, such as delayed transfer, dispute on applicability of the EPFO Act, and determination of the amount to be transferred to the fund.

An EPFO compliance official told BT, on condition of anonymity, that most defaults are because of disputes or delays, and not necessarily wilful non-remittance of money or out of criminal intent. “Often, there could be allegations of default due to interpretation of the EPFO Act. For example, an establishment might not contribute PF for contract employees whose direct employer has an independent PF code. The EPFO might dispute this, and enter it as a default case in its record,” says Atul Gupta, Partner, Trilegal.

The EPFO might also dispute the way a company structures the salary components of its employees, and allege that the structure is designed to contribute smaller sums towards PF. Defaults, which come under Section 7A of the EPFO Act, draw a penalty of 5-25 per cent, depending on the period of delay, and the EPFO also charges interest of 12 per cent on the amount due. The number of such cases witnessed a fall in 2014/15 to 14,625 from 18,062 in 2013/14.

However, failing to remit the employees’ contribution to the EPFO is a cognisable offence and as many as 5,885 companies – down from 6,512 in 2013/14 – were found guilty under Section 406/409 of the IPC. Besides, the number of cases pending before the court under the IPC sections was 1,819 as on 31 March 2015. In case of defaults under Section 406, the guilty can be jailed for up to three years and fined. Under Section 409, the jail term could be up to 10 years.

Though over 7,500 companies were found to be indulging in serious nature of PF defaults, we can take solace in the fact that a lot of the defaults reported by EPFO are of non-serious nature, and those indulging in serious defaults make for less that 1 per cent of the companies enrolled with the EPFO. However, it goes without saying that the regulators must act strictly against the rotten apples. ~

THE DEFAULTING COMPANIES ACCOUNT FOR LESS THAN 1 PER CENT OF THE 860,000 FIRMS ENROLLED WITH THE EPFO