I have to confess that in my early years in the profession, unexposed to labour litigation at the grassroots level, I was blissfully unaware that the Employee’s Provident Fund (EPF) Act actually applied to only those employees whose monthly gross wages were less than Rs 5,000. For the rest, it was a voluntary benefit with the contributions taxable as income.
While my professional awareness has improved — the labour market has also changed in the wake of globalisation. However in today’s scenario, big-ticket labour reforms are not the best topic to bring up. It is also a fact that India has been lagging behind in labour sector reforms, and the starting point could be removing the present cap of Rs 6,500 on EPF entitlement.
Therefore, when the Ministry of Labour and Employment by a notification dated October 1, 2008 amended the Employees Pension Scheme, 1995, to provide for a new category of employees, the “International Worker”, the initial knee-jerk reaction was that this is a discriminatory provision, inasmuch the foreign corporations and their expatriate employees would henceforth enjoy statutory benefits irrespective of salary levels, denied to Indian nationals.
The amendment provides two key definitions, that of “Pensionable Service” and “International Worker”. Pensionable service means the service rendered by a member covered by an international social security agreement with reference to the contributions received on his behalf in the EPF. So far so good. But who qualifies as an “International Worker”? What is meant by “Excluded Employee”, who is a “Detached Worker”? How do Indians qualify under these contexts?
Eventually, the ministry had to clarify that an International Worker may be an Indian worker who has divided his work between India and another country, or a foreign national working in India. A Detached Worker is a non-Indian International worker posted in India who contributes to the source country social security programme.
An “Excluded Worker” is a person to whom the EPF Act will not apply if the social security contribution he makes in another jurisdiction is under a bilateral Social Security Agreement (SSA) between that country and India on a reciprocal basis. In this case, the employee is exempted from the purview of the PF Act and ceases to be a Detached Worker.
With effect from November 1, 2008, Indian companies and firms employing International Workers are required to make a declaration to the PF Commissioner giving details of their International Workers. Once qualified as member, a mandatory deduction of 12 per cent of the basic pay has to be deposited with the EPFO along with the employer’s matching contribution.
Therefore, foreign nationals coming to take employment in India, who were earlier excluded from the provisions of the EPF Act as their remunerations in most cases far exceeded above the statutory threshold limit, will now be bound to comply, regardless of remuneration break-up.
Indian workers venturing to work overseas are subjected to all contributions to the social security fund of the country where they work, irrespective of the time spent in another country or the global tax being paid in a different jurisdiction. Often, the amount so contributed would stand forfeited, since like the Indian Provident Fund, all social security schemes are subject to long-term rules of withdrawal, causing the Indian expatriate or his employer heavy losses.
Exemption is provided only under the bilaterial SSAs. Options for a SSA with the US are being explored, as most Indian professionals go on short-term visas and pay 22 per cent of their salary as social security taxes without any benefit of the system or refund.
This is a huge leap forward. For any organisation employing expatriates — if the number of workers crosses 20, the amendments are applicable and returns have to be filed with the Indian PF authority indicating salary levels, nationality, etc. One objective is to encourage employment of locals, but the primary purpose is to create a level playing field to pressure other countries to enter into SSAs with India. The downside — the non-resident Indian deputed to India short-term, unless exempted under a SSA with the source country, will qualify as an International Worker.
The author is a Partner in Rajinder Narain & Co and can be reached at
kumkumsen@rnclegal.com
