THE EMPLOYEES’ PROVIDENT FUNDS AND MISCELLANEOUS PROVISIONS ACT, 1952

OBJECTIVE

• The Employees’ provident Funds and Miscellaneous provisions Act, 1952 is enacted to provide a
kind of social security to the industrial workers.

• The Act mainly provides retirement or old age benefits, such as Provident Fund, Superannuation
Pension, Invalidation Pension, Family Pension and Deposit Linked Insurance.

• The Act provides for payment of terminal benefits in various contingencies such as
retrenchment , closure , retirement on reaching the age of superannuation, voluntary
retirement and retirement due to incapacity to work.

Following schemes are covered under the Act by Central Government:

• The Employees Provident Fund scheme, 1952.

• Employees Pension Scheme, 1995.

• Employees Deposit Linked Insurance Scheme, 1976.

APPLICABILITY OF THE ACT

• Every establishment which is a factory engaged in any industry specified in Schedule I to the Act
and in which 20 or more persons are employed. (10 employees w .e .f 9 Nov 2010)

• Any other establishment or class of establishment employing 20 or more persons which maybe
specified by Central Government by notification in official gazette.

• Central Government can also apply provisions of the Act to any establishment employs less than
20 persons.

• Even if the provisions of PF Act are not applicable in a particular establishment, if employer and
majority of employees agree, the Central Provident Fund Commissioner can apply the provisions
to that establishment by issuing a notification in official Gazette.

• Once the provisions of Act become applicable, it continues to be applicable even if number of
employees fall below 20.

NON-APPLICABILITY OF THE ACT

• Any establishment registered under Cooperative Societies Act or State Law relating to
Cooperative societies, employing less than 50 persons and working without aid of power.
 • To any establishment belonging to or under Control of Central Government or State
Government

• To any establishment set up under any Central or State Act

• The provisions of the act extend to whole of India except the State of Jammu & Kashmir and also
the State of Sikkim where it has not been notified so far after its annexation with the Union of
India.

What is a Provident Fund ?

• A provident fund is created with a purpose of providing financial security and stability to elderly
people.

• It’s purpose is to help employees save a fraction of their salary every month, to be used in an event
that the employee is temporarily or no longer fit to work or at retirement.

• Employees Provident Fund Organisation (EPFO) is one of the largest social security organizations
in the world in terms of members and volume of financial transactions undertaken.

• EPFO is a statutory body of the Indian Government under Labour and Employment Ministry.

Pension Schemes of EPFO

Family Pension Scheme 1971 (FPS-71)

• If member is alive, no pension

• If member is not alive , pension to spouse only

• Pension amount was also very small as the contribution collected to the scheme is only 3.34%
(1.67%x2) of the Wages

• This scheme ceased when the EPS-95 came into existence

Employees Pension Scheme 1995 (EPS-95)

• If member is alive, pension to member.

• If member is not alive, Pension to to spouse and two children below 25 years of age.

• This scheme is applicable to all members who joined EPF after 15.11.1995

Eligibility & Entitlement

 • Every employee employed directly / through a contractor who is in receipt of wages are eligible
to become a member of the fund

• Irrespective of permanent / probationary employees, all employees are eligible for joining the
PF scheme from the date of joining the service

• Minimum 10% of the basic pay for establishments employed less than 10 persons; sick
industries declared by necessary authority; Jute, Beedi , Brick, Coir & Guar Gum Industries /
Factories

• Other industries maximum 12% of the basic pay

• A member can contribute voluntarily more than statutorily prescribed rate (up to 100% of basic
salary) which will be transferred to his PF A/c.

Benefits

• Employees can take advances / withdraw the PF in case of retirement, medical care, housing, family
obligation, education of children & financing of life Insurance Polices

• Upto 90% of the PF amount can be withdrawn at the age of 54 years or before one year of actual
retirement

• PF amount of the deceased member is payable to nominees / legal heirs

• Equal contribution by the employer

• present interest rate @ 8.5%

• PF A/c can be transferred if any member changes from one establishment to other where the PF
Scheme is applicable

Calculation

• 12% contribution by the employee is directly transferred to his Provident Fund A/c

• 12% is contributed by the employer out of which 8.33% is credited to Employee Pension Fund and the
balance 3.67% is transferred to PF A/c of the employee

• 1.10% Administration charges on total wages are payable by the employer

• 0.50% EDLI calculated on total EDLI slab (Rs. 6500) wages and payable by the employer towards EDLI
fund

• 0.01% EDLI Administration charges calculated on total EDLI slab wages are payable by the employer
 • Employees drawing basic salary upto Rs 6500/- have to compulsory contribute to the Provident
fund and employees drawing above Rs 6501/- have an option to become member of the
Provident Fund.

• It is beneficial for employees who draw salary above Rs 6501/- to become member of Provident
Fund as it is deducted from the salary before it is deposited on bank or given hence compulsorily
saving happens.

• Employee’s contribution is matched by Employer’s contribution(till 12%) so extra money and it

is helpful for tax purpose too.

• The employer contribution is exempt from tax and employee’s contribution is taxable but
eligible for deduction under section 80C of Income tax Act.

Eligibility

• An employee at the time of joining the employment and getting wages up to Rs. 6,500/- is
required to become a member.

• He / she is eligible for membership of fund from the very first date of joining a covered
establishment.

Provident Fund Contribution

• The provident fund contributions consist of contribution both by Employee and by Employer.

Employee Contribution

• Provident fund contribution is recovered @ 12% of wages from employees who earn up to a
maximum wage of Rs.6,500/- p.m. However, employees can contribute more than this statutory
maximum which will be considered as Voluntary Contribution.

Voluntary Contribution

• An employee can contribute voluntarily over and above the stipulated rate of PF contribution by
opting for Voluntary PF scheme at any rate as he / she desires i.e up to 100% of Wages.

• However, the contribution to VPF should be a certain % of wages and not a fixed amount.

• But the employer is not bound to contribute at the enhanced rate.

• It is suggested that the enhancement can be done at the beginning of the financial year for
comfort level of calculation. Employer Contribution Employer is also required to contribute
towards provident fund; the deduction rate is same as employee’s contribution i.e. 12% of the
wages. Of this 12%, 3.67% goes to Provident Fund and the balance of 8.33% goes to Pension
Fund.
Employer Contribution

• Employer is also required to contribute towards provident fund; the deduction rate is same as
employee’s contribution i.e. 12% of the wages.

• Of this 12%, 3.67% goes to Provident Fund and the balance of 8.33% goes to Pension Fund.

Employees’ Provident Fund Scheme

Investment:

• The amount received by way of Provident Fund contributions is invested by the Board of
Trustees in accordance with the investment pattern approved by the Government of India.

• The members of the Provident Fund get interest on the money standing to their credit in their
Provident Fund Accounts.

• The rate of interest for each financial year is recommended by the Board of Trustees and is
subject to final decision by the Government of India.

Final withdrawal:

Full accumulations with interest thereon are refunded in the event of

• death,

• permanent disability,

• superannuation,

• retrenchment or

• migration from India for permanent settlement abroad/taking employment abroad,

• voluntary retirement.

Pension Fund

• To avail pension benefit, the member

– should have completed 10 years of continuous service or

– he / she should have attained the age of 50 years or more.

– he / she doesn’t receive any other EPF pension

• The member will receive the Pension amount on a monthly basis after attaining the age of 58.
 • If the employee does not fall in the above criteria, he can apply for withdrawal of Pension
money.

• The Scheme provides for payment of monthly pension in the following contingencies

(a) Superannuation on attaining the age of 58 years;

(b) Retirement;

(c) Permanent total disablement;

(d) Death during service;

(e) Death after retirement/ superannuation/permanent total disablement;

(f) Children Pension; and

(g) Orphan pension.

• The amount of monthly pension will vary from member to member depending upon his
pensionable salary and pensionable service.

• The formula for calculation of monthly members pension is as under:

Members Pension = *Pensionable Salary x

(Pensionable Service + 2)

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To illustrate, if the contributory service is 33 years and pensionable salary is

• Rs. 5,000 per month, the above formula operates as given below:

• Members Pension =

`5,000 x (33 + 2) = Rs. 2,500 p.m

70

Employees Deposit-linked Insurance Scheme

• (EDLI) Apart from contributing to provident fund and pension fund, employer is also required to
contribute towards Employee Deposit Linked Insurance Scheme.

• The rate of contribution is 0.5% of the wages.

• The employees need not contribute any thing towards this scheme.
 • In case of death of a member, his / her nominee will get a maximum of Rs.60,000 from this
scheme.

Administrative Charges

• The employer is also required to pay administrative charges at 1.10% of emoluments towards
provident fund charges and 0.01% towards EDLI Scheme 1976.

• Employees need not contribute any thing towards these charges.

Composition of Central Board of Trustees.

• Chairman & Vice Chairman appointed by Central government.

• 10 persons representing employers and employees each – appointed by Central Government in

consultation with organization of employees.

• Central provident Fund Commissioner.

• Max. 15 officials representing Central Government & State Government each.

APPEAL

• Appeal against various orders passed under the Act can be made to employee’s PF Appellate Tribunal.

• Appeal is entertained only after depositing 75% of the amount demanded.