The Karnataka HC ruling on EPF benefits
On what grounds has a 15-year-old amendment to the law been struck down? How will withdrawing employees’ provident fund benets a…ect international workers in India, and Indian workers abroad? What is the response from the Employees’ Provident Fund Organi
‘The law was never designed to universally extend PF benets to employees irrespective of the salaries drawn by them’
The story so far:
The Karnataka High Court recently struck down a 15-year-old amendment to the law which permits the incorporation of foreign workers in the Employees’ Provident Fund (EPF). Accordingly, it quashed the special provisions for international workers under paragraph 83 of the Employees’ Provident Funds Scheme, 1952 (EPF Scheme) and paragraph 43A of the Employees’ Pension Scheme, 1995 (EP Scheme) for being “unconstitutional and arbitrary.”
What are EPF bene ts for foreign workers?
The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 is India’s pivotal social security legislation and regulates three main schemes — the EPF Scheme, the EP Scheme and the Employees’ Deposit-Linked Insurance Scheme, 1976. It is administered through a statutory body — the Employees’ Provident Fund Organisation (EPFO). An establishment with a minimum of 20 employees is required to register with the EPFO and make Provident Fund (PF) contributions for eligible employees. In 2008, the 1952 Act was amended to bring international workers or expatriates within the fold of the statute. As per the amendment, international workers employed in India for a minimum period of six months are mandated to make PF contributions which include 12% of the employee’s total salary. A matching contribution is made by the employer for each of these workers. However, contrary to their domestic counterparts, the wage ceiling of ₹15,000 per month for availing PF benets does not apply to international workers. Withdrawal of PF accumulations by international workers based in India is permitted only upon retirement from service in the establishment at any time after the attainment of 58 years of age; upon retirement on account of permanent incapacity for work due to bodily or mental incapacity and pursuant to any stipulations under existing Social Security Agreements (SSAs).
What are Social Security Agreements?
They are bilateral instruments executed to protect the social security interests of workers posted in a foreign country. Indian employees who are posted in other countries by their
Indian employers continue to make social security contributions in India as per domestic law. They may also be required to make similar contributions under the host country’s laws. However, due to restrictions on withdrawals and stipulations relating to their duration of stay, such employees rarely reap benets from PF contributions made outside India. As a result, SSAs are executed to avoid such double coverage — coverage under the social security laws of both the domestic as well as the host countries. India has SSAs with 21 countries.
What does the ruling say?
The Court highlighted that the primary aim of the 1952 Act was to safeguard industrial workers by oering them an alternative to pensions. However, it claried that the law was never designed to universally extend PF benets to employees irrespective of the salaries drawn by them. “The EPF & MP Act was (1952 Act) enacted with a view to see that those in lower salary brackets get retirement benets and by no stretch of the imagination, could it be said that the employees who draw lakhs of rupees per month should be given the benet under the enactment,” the Court asserted.
Justice K.S. Hemalekha pointed out that an Indian employee working in a foreign country which has an SSA with India continues to make PF contributions on a meagre sum of ₹15,000; however, a foreign worker is made to contribute PF on his entire salary even though both are international workers. Deeming this disparity unconstitutional, she observed, “The Government of India is unable to substantiate any nexus with the object sought to be achieved, para 83 is clearly discriminatory in treating the international workers of Indian origin and foreign origin dierently and thus violative of Article 14 of the Constitution of India.” Dismissing the government’s contention that special benets were extended to international workers as a result of existing international obligations, the judge reasoned, “There is no rational basis for this classication nor there is reciprocity that compels to classify foreign employees from non-SSA countries as international workers. The respondents neither have stated whether the Indian employees working in non-SSA countries [are] required to contribute their entire pay without statutory limit towards PF of that country. In the absence of parity and also in the absence of reciprocity, there is no justication to demand a contribution on the entire pay of a foreign employee from a non-SSA country.”
How has the EPFO responded?
The Ministry of Labour and Employment through the EPFO has issued a statement saying that it was “actively evaluating the future course of action.” An ocial told The Hindu, “The appeal is being prepared and the argument will be based on special provisions in the scheme that are drafted with specic purposes of protecting the interests of Indian workers abroad. The EPFO is also consulting representatives of employers and employees to clear apprehensions”.
Referring to the SSAs executed with 21 countries so far, the EPFO’s press release said, “These agreements aim to guarantee the uninterrupted social security coverage of employees during international employment. These agreements are very important for India for promoting international mobility and leverage the demographic dividend.”
What are the implications?
Pooja Ramchandani, partner and head of the employment law practice at Shardul Amarchand Mangaldas, told The Hindu that while the High Court’s ruling may have a persuasive value before the Courts outside of Karnataka, PF authorities can still enforce these provisions in other States in the interim period. This might result in employers having to continue with provident fund compliances for international workers in certain regions. “The question is not whether international workers should be extended provident fund benets on account of their limited period of employment, it is whether there is a rationale for classication of foreign employees from non-SSA countries (as) dierent from Indian employees in terms of the rate of contribution,” Ms. Ramchandani said.
She also pointed out that India should consider introducing amendments to ensure that expats are treated at par with domestic workers with respect to provident fund benets to attract foreign investments. Highlighting that the ruling is also likely to have an impact on India’s existing SSAs with other countries, she added, “If the Karnataka High Court judgment is upheld by the Supreme Court, it remains to be seen what amendments it [India] will bring about in the law to continue the reciprocal arrangements enshrined in the SSAs.”
(With inputs by A.M. Jigeesh)