Joint request for Provident Fund contribution on higher pay

Background

Provident Fund (‘PF’) legislation has long held that contribution payable on behalf of members shall be the applicable percentage of monthly pay, which is restricted to the statutory ceiling (i.e., on INR 15,000 per month as of today). To elucidate, if the monthly pay of a member is INR 50,000 per month, his monthly contribution should be INR 24% X Min of (50,000 or 15,000) = INR 3,600 per month.

This position is subject to a caveat, that the member would be allowed to contribute on full monthly pay (higher pay) if he submitted a joint request along with his employer, to this effect. In such case, in our example above, the member’s monthly PF contribution would work out to INR 24% X 50,000 = INR 12,000 per month. Besides the joint declaration, the employer would need to have contributed to administration or inspection charges (as may be applicable), on the actual/ higher pay. The joint declaration would need the permission of the competent authority at the Employees’ Provident Fund Organisation (‘EPFO’).

It is important to note that market practice followed over the last 3 decades, has been quite to the contrary of the above-mentioned legislative indications. A vast majority of employers have adapted the practice of contributing towards a member’s PF on actual monthly pay, without filing any semblance of a joint request to do so. EPFO, on its part, does not seem to have taken any blanket action against employers for this apparent non-compliance.

Regulatory amendment

On January 31, 2024, the EPFO issued Circular No: WSU/ E-108547/ 4421, emphasising the need for a member-employee to furnish a joint request and permission, for him to contribute on actual/ higher pay.

The said circular, segregates requirements for members, as indicated in the table below.

Impact of circular on employees

The following is the expected impact of the circular on the employees:

• Type (2) employees – provide joint request for contribution on higher pay – employee request and undertaking from the employer’s side. While no timeline is specified, it is better to be ready with the joint request at the earliest opportunity.
• Type (3) employees – provide joint request for contribution on higher pay – employee request and undertaking from the employer’s side. This is indicated as an immediate requirement.

WTW recommendations

In view of the above amendment, WTW recommends the following action for employers:

• Reach out to all existing employees with a general communication, as to how the organisation would approach joint requests for contributions on higher pay.
• Address Type (3) employees and prepare the joint request, including the employer’s undertaking as well as include this as a part of the joining kit for new hires going forward. Moreover, new joiners (first-time hires) with pay greater than INR 15,000 per month, will be able to opt out of participating in the provident fund scheme.
• Address Type (2) employees – while there is no urgency to file the joint request, it would be advisable to prioritise employees who are closer to retirement and start processing their joint requests at the earliest.
• Try and reach out, with the same general communication, to employees who have exited the organisation between November 1, 2023, and the day of roll out of the said communication.

Conclusion

By introducing the said circular, EPFO has found a way of enforcing certain overlooked provisions of the PF legislation and provided operational guidance towards achieving the same objective. Consequently, this circular may bring to light, certain administrative implications such as updating/ aligning payroll systems and educating employees (especially new joiners) about their choices.

We are given to understand that EPFO may launch an online facility, where the employer and employee can sign a document in this regard. However, until such time, we recommend priority be given to the joint requests of:

• New joiners coming into employment on or after November 1, 2023 – since the requirement is immediately triggered; and
• Existing employees in the descending order of age – to prevent hassles with EPFO on retirement.

Please feel free to reach out to your WTW consultant or write to wtwindia@wtwco.com for any questions or guidance around this development.