Some Challenging Problems In Compensation & Benefit
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Some Challenging Problems In Compensation & Benefit

birendrajha Started The Discussion:

MANAGING COMPENSATION & BENEFIT PART AS PER CLAUSE “INTERNATIONAL WORKER” IN EPF AMENDMENT SCHEME 2008



The recently published Gazette notification GSR 706 E Dated 1/10/2008 on Employees Provident Funds ( Third Amendment) Scheme 2008 by the Labor Ministry, Government of India has substituted a clause “International Workers”. It has created confusion among Compensation and Benefit Managers in understanding the real meaning, thus without taking the recourse of the settled law on “workers” in India, the managers have better chosen a safe option in deducting the EPF part from the pay packets of senior foreign officers working in their company. Thus it increases an irrational compensation & benefit part by 24% of both employer and employee. This article in brief way summarizes the real meaning of “worker” as understood in “International Worker” in EPF Act and not felt properly by the experts. Without understanding the real meaning of “International Worker” many MNCs’ have implemented the EPF scheme in irrational way in their companies without any resistance and in a odd way have loaded the compensation & benefit part of their senior level foreign officers.

As per the present notification, it has substituted clause (ff) in Paragraph 2 as “International Worker”, irrespective of their Salary income now any foreign staff coming to India other than “excluded employee” is covered as “Worker” ( here called “International Worker”, i.e worker coming from international communities) under the present EPF Amendment Scheme 2008. It means as per above notification any foreigner who is designated as Managing Director and working in India from any country other than Belgium / France and Germany shall be covered as “Worker”

I shall demonstrate here that how this notification is irrationally incomplete and hastily drafted without clearly exposing the settled law in understanding the real meaning of “international workers” as felt in EPF Act. I shall demonstrate here that what is the real meaning of “international worker” in the notification taking the example of a Managing Director coming to India either from Japan / South Korea / USA / or UK on employment visa.

The EPF Act doesn’t defines “workers”, whether Indian or international. It is required to be understood in the sense of “worker” as exhibited in “international workers” from settled law. Though the EPF scheme, in the case of “international worker” has deleted the upper limit of pay of Rs 6500.00. But it doesn’t mean that by deleting the upper limit of pay of Rs 6500.00 in case of “international worker” it has crossed the threshold limit of the concept beyond “worker” or “workmen class” in case of foreign employees coming to India on job. The only difference is that for Indian workers the maximum limit is Rs 6500.00 but for foreign workers the limit of Rs 6500.00 has been waived out.


Before that we will have to travel through the historical legislation route of Employees Provident Fund Scheme, in order to determine the class of employees for which this law has been specifically drafted. The scheme shows that in November 1950 the Standing Labor Committee discussed the subject matter of Provident Fund for “industrial workers”, which was by way of ordinance on 15th Nov 1951 came into force, which in 1976 was called as Labor Provident Fund Laws Act 1976, which was meant for Labor class. The nomenclature of Labor Fund Laws was changed to Employees Provident Funds Act 1952, without changing the inner concept of Labor Provident Fund Laws. Thus the entire Provident Fund Laws centers on “workers” or “industrial workers”.

The dimension of the EPF Act becomes clearer when in the compulsory zone it covered an employee drawing salary up to Rs 6500.00. That is when law of ceiling of Rs 6500 was drafted at that moment the standard maximum figure on pay level of industrial workers was Rs 6500 (which is till date applicable on Indian employees in India). Since the law was for workers, so it covered compulsorily workers class or class receiving pay up to Rs 6500.00 and removed other high paid salary class under voluntary zone. That is for the mandatory zone people the EPF Act is only serious.


The definition of “employee” what EPF scheme explains is a person employed on wages. (See very clearly the word used wage). The wage always denotes workmen class. So this EPF scheme covers in mandatory zone wage class people only. In this background the intention of the legislature on “worker” either coming from India or international class is required to be understood in EPF scheme which are employed on wages. So the word “worker” in EPF Scheme as read in “international worker” is a person on “wage” coming from foreign country having “workmen” class status in India.

Though EPF scheme has not defined “worker”. But, it is a well settled law that in the absence of any definition of the word “worker” in any Act., the word “worker” as defined in the Factories Act, 1948 can usefully be adopted for purposes of determining the definition of “worker” within the meaning of any Act (Rajasthan Transmission Wires (P.) Ltd. v. ITO [1985] 22 TTJ (Jp.) 343.). The concept of this “worker” can’t be diluted by including in the definition of “worker” any high salary paid “Managing Director” of any company in India.

In Aloyslus Nunes Vis Thomas Cook India Ltd, 2000 II CLR 649, it was held by the apex court that several tests are required to be applied to find out if an employee is a “worker” or not. Among them one test is also to find out whether the person employed is in a managerial or administrative capacity or not. If so, he is not a “worker”. This test is further strengthened by the settled law in the case of Dharangdhra Chemical Works Vs State of Sorashtra, AIR 1957, SC 264. The Managing Director of a company is in a managerial and administrative capacity so he is not a “worker” either in national or international class.

It is also well settled law that “owner” cannot be counted as “worker” (CIT vs. P.R. Alagappan [1988] 173 ITR 82 (Mad.). Because the owner holds ultimate control over the affairs of the factory. In EPF Act 1952 Section 2 K “occupier of a factory” has been defined as a person or managing agent having ultimate control over the affairs of the factory. Thus “occupier” is not a “worker”, as he or his managing agent is the virtual “owner” of the factory. So here the Managing Director in Indian land as occupier of a factory can’t also be regulated as “ worker” coming from India or international communities.

The EPF Amendment 2008 has also substituted Paragraph 36 (Duties of Employers), where it says that it shall be the duty of the employers to show in the return of “international worker” amount of: “Basic Wage”, “Retaining Allowance”, and “Dearness Allowance” of the “international worker”, the dimension of the word “worker” in “international worker” becomes clear with the nomenclature of the word used as “Basic Wage”.


This nomenclature of “Basic Wage” in this EPF Amendment Scheme is very important, which concept is different from “ Basic Salary”. As “Basic Wage” denotes a class of “workmen”, and not of any Managing Director. The Section 2 (b) in EPF Act defines “Basic Wage” as “all emoluments which are earned by an employee”. The definition of “employee” in this Act as under clause “f” “means any person employed for wages”. The Central Industrial Dispute Act 1947 defines “Wages” as “all remuneration .. payable to a workmen”. The Same Central Act defines “workmen” as under clause 2 ( s) as “any person including apprentice employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work”.

The Apex Court has laid down well settled law in order to identify “workmen” it says in A. Sundarambal Vs Govt. of Goa ( 1988) 4 SCC 42 that “ A person not engaged in skilled or unskilled manual, supervisory, technical, or clerical work even though employed in an industry is not a workmen.” So the Managing Director either coming from India or international class is not a “workmen” under the law, so he can’t be covered under the ambit of “worker” or “international worker”


In this proportionate sense the notification is required to be understood while deriving the real meaning of “worker” in “international worker”, for which three tests are required to be covered on foreign employees to know the status of “international worker”. He should be holding work on:

1) workmen class job; or
2) must not be in administrative or managerial capacity; or
3) work on wage doing any manual, unskilled, skilled, technical, operational, clerical or supervisory work

Though some managers without understanding the real meaning of such notification has started loading EPF cost in Compensation & Benefit of their foreign employees, without crosschecking the hidden law, which has resulted into high employers – employees cost by disturbing the settled concept of Labor Law in understanding “worker” or “workmen”.


* Birendra K Jha
For profile of the authorship please refer web site:
http://hrproblems.googlepages.com/tps
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