Employee Provident Fund (EPF)

1. Understanding Employee Provident Fund (EPF)

Employee Provident Fund (EPF) is a government-heralded initiative started by keeping retirement benefits of employees in mind. Commonly also called just provident fund, it is an instrument of investment which gives employees something to fall back on after retirement. Here we elaborate on EPF with some basic understanding, rules of applicability, PF contributions and other critical information. If you are an employee, this blog will give you an overview of EPF. If you are an employer in India, or a foreign businessperson looking to manage a team of employees in India,then couple of companies provide a Employee Of Record (EOR) services in india, this blog will inform you on the specifics, if you want to kickstart EPF in your organisation.

1.1. Provident Fund – A Retirement Benefit 

EPF was initiated by the government in 1952 as an employee welfare and benefit program. Continuing ever since, it has 3 primary schemes under it:

  1. The Employees’ Provident Fund Schemes, 1952
  2. The Employees’ Pension Scheme, 1995
  3. The Employees Deposit Linked Insurance Scheme, 1976.

Of the 3, the EPF Scheme 1952 called for both employees and employers to invest some money into a regulated, authority-maintained provident fund. For the employees, it was a percentage of their salaries (popularly, 12%). From the other side, the employer would invest an equal amount. 

Next, the EPS Scheme 1995 is an employee pension which is headed by employers rather than employees. Under the Pension Scheme, employees continue to receive a portion of their salary even after retirement. Public sectors are still ardent on the practice of handing pensions, whereas the trends show it is declining in the private sector. Here are deeper insights on calculating pension under EPS.

Last of the 3, the EDLI scheme is funded externally by the EPFO (Employees Provident Fund Organisation). It provides more insurance cover than retirement benefits. Registered nominees of employees under the EDLI scheme receive lump sum amounts in the unfortunate event that something happens to the employee.

2. Provident Fund Applicability Rules

2.1. Applicability of Provident Fund for an establishment

EPF is applicable for establish if:

  1. The establishment is a factory engaged in any industry specified in Schedule 1 and in which 20 or more persons are employed.
  2. The establishment employs 20 or more persons.
  3. The establishment falls under a class of such establishments which the Central Government by notification from the official gazette, specify eligible. Such an organisation can even have less than 20 employees to be applicable for provident fund.

2.2. Applicability and requirement of Provident Fund for an employee

As a rule, every employee of the establishment earning salary up to INR 15,000 is mandatorily covered under provident fund, with the following exceptions

  1. The employee, a member of the EPF, withdraws in full amount his / her accrued provident fund and/or the employee whose pay exceeds INR 15,000 and is not a member of the provident fund at the date of joining.
  2. The person is an apprentice / intern, i.e., not on a full-time payroll.There are so many companies that provide PEO Payroll services in India or other countries and take care of the compliance which relieves the management completely from the worries of payroll

3. Notable Points On EPF

3.1. PF Contribution

The provident fund contribution is as follows:

  1. The employee contributes 12% of wages or basic salary.
  2. The employer also contributes 12% of the employee’s wages, where 3.67% goes to the EPF, while the rest 8.33% goes to the pension funds under the EPS scheme.

3.2. Due Dates

Employers are required to deposit the contributions received from the employees on or before the 15th of coming month. For instance, EPF contribution for the month of July must be deposited to the fund before August 15th.

3.3. Provident Fund transfers

This is a very logical and real-life scenario. What if an employee leaves a company? What happens to their diligent PF contributions? The EPF scheme has taken this into consideration. Provident fund can be transferred with the employee when he / she joins another company. There are certain forms and paperwork that need to be completed for this to work.

3.4. Digital Provident Fund Facilities

We now make all other transactions from our smart devices, digitally. Why should investment schemes be any different? One can now carry out EPF activities online. Here, employers can review and edit information for their use, like details of the PF members. Employees can perform other actions like withdrawals, checking contributions,The PEO agency takes care of cost-effective services for payroll,insurance etc.

Reading Resources: Withdrawals and other figures on EPF.

3.5 interest is earned on PF balance 

Amount in Employee’s PF account is eligible to earn interest at the rates specified  by the government from time to time and this interest is exempted from Income Tax. The interest rate is generally higher than normal fixed deposit rates. Currently its 8.5%. considering the PF as a retirement benefit, the higher tax free interest makes it more attractive as an investment option

3.6 Withdrawals from PF account

An employee can withdraw amount from his accumulated PF balance as per the rules specified for the valid reasons

Although the contributions to a provident fund are pretty straight forward, they need to be monitored and regulated. Remember, the PF benefits the employee the most, otherwise, the purpose is defeated. Remunance provides shared services & Global PEO Services that help businesses setup their employees’ salary structures and retirement benefits.