Dear Readers,
Greetings from Classic Labour!!!!
The
reduction in statutory rate of contributions from 12% to 10% for wage months
May, 2020, June, 2020 and July, 2020 for all class of establishments covered
under the EPF & MP Act, 1952 was announced on 13.05.2020 by the Central
Govt. as part of Atma-Nirbhar Bharat package and same has been notified vide SO
1513 (E) dated 18.05.2020 published in the Gazette of India.
This notification was issued as due to Covid-19 pandemic and lockdown being in force across the country, the Central Government felt that to provide *liquidity* in the hands of employers and employees, there was a need to reduce the contribution rate. Hence it has amended the notification of the Government of India in the Ministry of Labour published in the Gazette of India, Extraordinary, Part II, section 3, sub-section (ii) vide number S.O. 320(E), dated 9th April, 1997;
This original 1997 notification was published in exercise of power conferred under 1st provision of the sec 6 of the EPF & MP Act 1952. Sec 6 is being reproduced below for the readers benefit
*[6.] Contributions and matters which may be provided for in Scheme. –*
The contribution which shall be paid by the employer to the fund shall be ten per cent of the basic wages, dearness allowance and retaining allowance (if any) for the time being payable to each of the employees (whether employed by him directly or by or through a contractor), and *the employee’s contribution shall be equal to the contribution payable by the employer in respect of* and may, if any employee so desires, be an amount exceeding ten per cent of his basic wages, dearness allowance and retaining allowance (if any), subject to the condition that the employer shall not be under an obligation to pay any contribution over and above his contribution payable under this section:
Provided that in its application to any establishment or class of establishments which the Central Government, after making such inquiry as it deems fit, may, by notification in the Official Gazette specify, this section shall be subject to the modification that for the words “ten per cent”, at both the places where they occur, the words “12 per cent“ Shall be substituted:
The original notification of April 1997 created increased contribution the rate from 8.33% to 10% w.e.f. 01-05-1997. However it created an exception in form of schedule II which allowed certain industries to retain earlier lower contribution rate of 8.33%. These rates were further enhanced to 12% and 10% respectively w.e.f. 22-Sep-1997.
Now, a basic question that is being asked by industries all over is – Whether can they as an employer contribute at 12% instead of 10% rate for period May 2020 to July 2020. To answer this query we must visit provisions of voluntary coverage of an establishment u/s 1(4) of the EPF & MP Act 1952. Under these provisions, any establishment which has less than 20 employees can voluntarily apply for obtaining EPF coverage and the PF commissioner may apply provisions of EPF & MP Act to such establishment. It is pertinent to note that since such establishment falls under the exception of the April 1997 notification through *Schedule II - point (I) - Any establishment in which less than twenty persons are employed;*still the EPF accepts its contribution at rate of 12%. This makes it clear that EPFO has mandate to accept higher contribution from employer. Further examples, there are instances that EPF has accepted contributions at rate of 12% from jute industry which comes under the exception of schedule II of the said notification.
So in my considered opinion Schedule II of the said notification is for benefit of certain class of establishments and if the establishment does not want to take the benefit, it can go by its choice of contributing at higher rate. Also the notification of 18-May-2020 was introduced primarily due to covid-19 and lockdown situation where the government wanted to introduce liquidity benefits to the employers and employees. In event the employer and the employees don’t intend to have this liquidity benefit they are free to do so by contributing at higher rates of 12%.
Further it must be noted that employee’s contribution has to be equal to employers. So *if the employer contributes at rate of 12%, the employee is bound to contribute at equal rate.* This is provided in section 6 of the EPF Act and Paqra 29 of the EPF scheme
*Note*
The above reduction of rate of contribution is not applicable to establishments like Central and State Public Sector enterprises or any other establishment owned or controlled by or under control of the Central Govt. or State Govt. These establishments shall continue to contribute 12% of basic wages and dearness allowances.
The reduced rate is also not applicable to the establishments eligible for relief under PMGKY scheme, since the entire employees EPF contributions (12% of wages) and employers’ EPF & EPS contribution (12% of wages) for employees having less than 15000 salary per month , totalling 24% of the monthly wages is being contributed by the Central Govt.
This notification was issued as due to Covid-19 pandemic and lockdown being in force across the country, the Central Government felt that to provide *liquidity* in the hands of employers and employees, there was a need to reduce the contribution rate. Hence it has amended the notification of the Government of India in the Ministry of Labour published in the Gazette of India, Extraordinary, Part II, section 3, sub-section (ii) vide number S.O. 320(E), dated 9th April, 1997;
This original 1997 notification was published in exercise of power conferred under 1st provision of the sec 6 of the EPF & MP Act 1952. Sec 6 is being reproduced below for the readers benefit
*[6.] Contributions and matters which may be provided for in Scheme. –*
The contribution which shall be paid by the employer to the fund shall be ten per cent of the basic wages, dearness allowance and retaining allowance (if any) for the time being payable to each of the employees (whether employed by him directly or by or through a contractor), and *the employee’s contribution shall be equal to the contribution payable by the employer in respect of* and may, if any employee so desires, be an amount exceeding ten per cent of his basic wages, dearness allowance and retaining allowance (if any), subject to the condition that the employer shall not be under an obligation to pay any contribution over and above his contribution payable under this section:
Provided that in its application to any establishment or class of establishments which the Central Government, after making such inquiry as it deems fit, may, by notification in the Official Gazette specify, this section shall be subject to the modification that for the words “ten per cent”, at both the places where they occur, the words “12 per cent“ Shall be substituted:
The original notification of April 1997 created increased contribution the rate from 8.33% to 10% w.e.f. 01-05-1997. However it created an exception in form of schedule II which allowed certain industries to retain earlier lower contribution rate of 8.33%. These rates were further enhanced to 12% and 10% respectively w.e.f. 22-Sep-1997.
Now, a basic question that is being asked by industries all over is – Whether can they as an employer contribute at 12% instead of 10% rate for period May 2020 to July 2020. To answer this query we must visit provisions of voluntary coverage of an establishment u/s 1(4) of the EPF & MP Act 1952. Under these provisions, any establishment which has less than 20 employees can voluntarily apply for obtaining EPF coverage and the PF commissioner may apply provisions of EPF & MP Act to such establishment. It is pertinent to note that since such establishment falls under the exception of the April 1997 notification through *Schedule II - point (I) - Any establishment in which less than twenty persons are employed;*still the EPF accepts its contribution at rate of 12%. This makes it clear that EPFO has mandate to accept higher contribution from employer. Further examples, there are instances that EPF has accepted contributions at rate of 12% from jute industry which comes under the exception of schedule II of the said notification.
So in my considered opinion Schedule II of the said notification is for benefit of certain class of establishments and if the establishment does not want to take the benefit, it can go by its choice of contributing at higher rate. Also the notification of 18-May-2020 was introduced primarily due to covid-19 and lockdown situation where the government wanted to introduce liquidity benefits to the employers and employees. In event the employer and the employees don’t intend to have this liquidity benefit they are free to do so by contributing at higher rates of 12%.
Further it must be noted that employee’s contribution has to be equal to employers. So *if the employer contributes at rate of 12%, the employee is bound to contribute at equal rate.* This is provided in section 6 of the EPF Act and Paqra 29 of the EPF scheme
*Note*
The above reduction of rate of contribution is not applicable to establishments like Central and State Public Sector enterprises or any other establishment owned or controlled by or under control of the Central Govt. or State Govt. These establishments shall continue to contribute 12% of basic wages and dearness allowances.
The reduced rate is also not applicable to the establishments eligible for relief under PMGKY scheme, since the entire employees EPF contributions (12% of wages) and employers’ EPF & EPS contribution (12% of wages) for employees having less than 15000 salary per month , totalling 24% of the monthly wages is being contributed by the Central Govt.
Classic Labour Advisory Services Pvt. Ltd.
Mr Sunil Basakhetre
(Chief Consultant)
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