In today’s globalized workplace, companies prefer engaging employees from other countries as much as their own domestic resources. This is aimed at attracting and utilizing superior talent, skill and knowledge, which transcends across boundaries. In respect of such employees, the employers are obligated to comply with relevant social security legislations.
The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act) is one of the primary social security legislations in India. The Act is applicable to all establishments employing 20 or more employees. Originally, the EPF Act was applicable only to Indian employees.
The EPF Scheme, 1952 (EPF Scheme) is the central scheme under the EPF Act. The scheme is managed under the aegis of the Employees Provident Fund Organization (EPFO). The scheme also covers every establishment in which 20 or more employees are employed. Certain establishments with less than 20 employees are also covered under the Scheme, subject to certain conditions and exemptions.
The Government of India, on October 01, 2008, broadened the scope of the Act, to include within its purview specific categories of Indian employees working outside India and non-Indian employees working for an establishment in India. Such category of employees are termed as ‘International Workers’ (IWs).
Para 83 in the EPF Scheme and Para 43-A in the Employees’ Pension Scheme 1995 (the ‘Pension Scheme’) are enabling provisions for PF contributions in respect of international workers.
Meaning of International Workers
As per the provisions of the EPF Act and the above Scheme, ‘International Workers’ are defined to mean (i) any Indian employee having worked or going to work in a foreign country who is entitled to benefits under a Social Security Agreement (SSA) that India has executed with such foreign country; and (ii) an employee, other than an Indian employee, who does not hold an Indian passport and who works for an establishment in India to which the EPF Act applies, provided that the country to which such employee belongs does not have a SSA with India.
Hence, the concept of International Workers has been introduced to include Foreign Nationals working in establishments, to which the EPF Act applies, within its ambit. Further, Indian passport holders travelling to a country with which India has an effective SSA are to be tagged as International workers and covered by the special scheme.
Further, The Ministry of Labour and Employment, Government of India issued a notification, effective 2nd November 2016, which provides that a Nepalese National and Bhutanese national shall be deemed to be an Indian worker under the EPF Act for the purpose of EPF contribution, provided such employee is a Nepalese/Bhutanese national on account of Friendship/ Peace Treaty with India.
PF Coverage of International Workers
The EPF Act requires the international worker to become a member of the provident fund from day one of his engagement. The period of employment in India is not a requirement to determine the eligibility under the Act.
For ease of PF coverage, India has executed Social Security Agreements with select countries. By nature, SSA is a bi-lateral agreement between countries which protects the interests of the workers in the host country. This mutual arrangement between countries accounts for cases of no coverage and eliminates double coverage.
In terms of the EPF Act and the EPF Scheme, if there is SSA between two countries, the rules regarding provident fund of International Worker are determined as per the provisions of the relevant SSA. Hence, the citizens who hail from the countries with which India has Social Security Agreement will be excluded from coverage of the Scheme. Provision of such exclusion may be availed by producing the certificate of coverage issued by the Authorities of parent country of the international worker. Such worker shall continue to contribute to the Social Security Scheme of his home country despite taking up employment in the country with which the parent company has the Social Security Agreement.
In respect of those countries with which India has not entered into any SSA, the PF provisions are governed by the EPF Act and the Scheme. Hence, the advantage of bringing International Workers within the purview of the EPF Act and entering into SSAs with various countries is that Indian employees posted abroad are no longer required to contribute to the social security scheme of the countries with which India has entered into SSA.
As regards the limit up to which employee contribution is required to be made, the same is set at 12% of INR 15,000, which is inclusive of basic wages, dearness allowance and retaining allowance, in respect of Indian employees, even if the monthly pay-out of the employee exceeds INR 15,000 and the employer is required to match employee contribution. However, this upper limit does not apply to the International Workers and contribution must be made by companies on monthly gross pay-out in respect of such workers.
Where the Company engages international workers, the compliances pertaining to remittance of EPF contributions are crucial and must not escape due diligence from a compliance standpoint. Therefore, in the event the Company fails to remit required PF contributions in respect of international workers, it may amount to a non-compliance and attract notice from PF Commissioners. In such a scenario, the company may face significantly greater liability to make good any pending contributions, along with interest and damages. Further, labour authorities have been quite stringent with regard to capturing such non-compliances during inspection. A conscientious approach by the Company in ensuring PF compliances related to international workers can avoid risk of exposure to prosecution.