Can a Company Withhold PF Contributions After Employee Misconduct? Seeking Advice

Hello,

I would like to know and have suggestions from all seniors regarding PF. My question is:-

1) Can company hold employer's contribution towards PF after dismiss / termination after serious willful misconduct by any employee?
2) If yes, then how PF department will entertain that fund?

Hope for quick valuable suggestions soon.

Regards

Pankaj Chandan

Dear Pankaj,

No, not at all, let it be any condition. The dear fund is not with the employer; the fund is with the PF department. They cannot hold it. Being an employer, you cannot even refuse to sign the withdrawal.

Please refer to Section 10 of the act for further detail.

Thanks,
J. S. Malik

Hi,

I agree with Mr. Malik's statement. An employer cannot withhold PF and also cannot refuse to sign the withdrawal/transfer form. This right is protected by statutory provision.

Best regards,
KB

Thanks Mr. Malik!! But, before that I had also an impression as you said.

In form (5 ) I found wording are as follow:-

A request for deduction from the account of the member dismissed for serious and willful misconduct should be reserted by the following certificate.

“Certified that the member mentioned at Serial No. _______ Shri _________ was dismissed for serious and willful misconduct. I recommend that the Employer's Contribution for ____________ should be forfeited from the account in the fund. A copy of the order of dismissed is enclosed.”

This wording confuse me a lot. I request you to please refer form 5 and correct me if I am wrong somewhere.

Valuable suggestions required.

Regards

Pankaj Chandan

Dear Pankaj,

I have been following your posts on this site for some time now, and I must say that you should try to clarify your confusions before seeking suggestions from seniors. Seniors may not be able to provide answers if you ask the wrong questions. First, try to determine the exact purpose of Form 5. I believe there might be a misunderstanding. Form 5 is required for a completely different purpose than what you have mentioned.

Regarding your initial query, the issue of contribution arises after an employee is dismissed or terminated. If an employee is terminated on the 20th of any month, the company is obligated to pay their contribution until the 20th. That's it.

Regards

Dear Pankaj,

I have gone through your query. Sometimes it takes time because one has to refer books. No one is perfect and remembers everything. I have gone through your query, and it is not mentioned in Form 5 as you have stated; it is mentioned in Form 10. I, too, got confused about the purpose of writing this. Let us wait for other suggestions.

Thanks,
J. S. Malik

Dear Awvik,

I am sorry to write Form (5) that is Form (10). But instead of correcting me you are saying that my question is wrong. Not fair.

What you have given me answer is well known to me – I am not asking for that. My question is well said above but for you I am repeating the same i.e.

Can Company forfeited employer's contribution form the Provident Fund? IF NO then refer Form 10 and clear my confusion, IF YES then how that forfeited fund will be entertained.

Awvik I would like to tell you one thing that if somebody doesn't have any confusion then there is no need to ask any questions.

Hope you understand

Regards

Pankaj Chandan

Thank you, Mr. Malik,

That is not in Form 5, it is in Form 10.

I spoke to HR consultants and many of my HR contacts, and they are also confused by that wording.

Thank you so much for your reply, and I would be highly grateful if you could help me clear up my confusion.

Regards,

Pankaj Chandan

Dear Pankaj,

I have gone through your query. Sometimes it takes time because one has to refer to books. No one is perfect and remembers everything. I have reviewed your query, and it is not mentioned in Form 5 as you stated; it is actually mentioned in Form 10. I too was confused, which is why I am writing this. Let us wait for others' suggestions.

Thanks,
J. S. Malik

Hi,

It is not possible, but an employer can refuse to sign the claim forms, i.e., Form 19 and 10C.

MANOKAVIN

Hi Manokavin,

Please see the query again - awaiting for your reply!

Regards,
Pankaj Chandan

Dear Pankaj,

Thanks for bringing a good question here on citehr. This is a tricky question because the answer is not expressed in writing anywhere.

During my initial career in the late 1980s, this was a practice and was legal until the year 2000. Provident Fund contribution of the employer is not the right of the employee if he is terminated for wrongful reasons. There are many case laws from my time, and I also followed these practices. They were challenged in labor courts, and we won cases on the ground that the employee has no lien on the employer's contribution if he is terminated for disciplinary and wrongful reasons.

I still believe that this is the law, and because in the last 10 years, industrial disputes and litigations have reduced due to the stern economic growth of the service and IT sectors, this question was never raised or noticed.

But as an experienced professional, I do express that this was in line with several Supreme Court judgments and labor provisions.

I hope for accurate details and a reference to a Supreme Court judgment or PF provision. You have to consult a labor law practitioner, especially an experienced one. Only they can offer you the perfect reference of case number and corresponding law that upholds the disqualification of an employee from receiving the employer's contribution to PF.

Regards,

Bhajiya

Thank you so much, Bhajiya,

I also floated this query to some PF consultants and many other HR friends, but still, all of them are silent and need time to clarify.

For All: This is not a question to avoid but needs to be discussed.

Regards,
Pankaj Chandan

Dear Pankaj,

Thanks for bringing a good question here on citehr. This is a tricky question because the answer is not explicitly stated in writing anywhere. During my initial career in the late 1980s, this was a common practice and was legal until the year 2000. Provident Fund contribution of the employer is not the right of the employee if he is terminated for wrongful reasons. There are many case laws from my time, and I also followed these practices, which were challenged in labor courts. We won cases on the grounds that the employee has no claim to the employer's contribution if he is terminated for disciplinary and wrongful reasons.

I still believe that this is the law. Due to the strong economic growth in the service and IT sectors in the last 10 years, industrial disputes and litigations have reduced, so this question was never raised or noticed. However, as an experienced professional, I can confirm that this practice was in line with several Supreme Court judgments and labor provisions.

For accurate details and references to the Supreme Court judgment or PF provisions, you may need to consult a labor law practitioner, especially an experienced one as they can provide you with the perfect reference of the case number and corresponding law that upholds the disqualification of an employee from receiving the employer's contribution to PF.

Regards,
Bhajiya

I am happy you have unearthed a good practical question which, to my notice, on this forum, no one has ever asked.

I am glad to see at least someone from us has a good approach to analyze the technicality of such issues. I know most PF consultants are liaising agents to the PF office, who are retired from the PF Office as Inspectors or UDC, etc., and are sometimes only interested in making money rather than having sound knowledge of PF laws.

Even most labor practitioners miss such detailed information and refer to books and case laws if, once in their lifetime, some client approaches for a case on such exclusive grounds.

But I am quite sure Employers have the right to deprive an employee of their contribution. Currently, I am working in Australia, and I cannot figure out the case number and provision in the PF Act of India. Still, I express this due to my previous experience in India and dealing with these problems very often when industrial relations were at their peak, especially during the militancy of trade unionism like Dutta Samant in Mumbai. So, we were equipped with all the tools where we could put employees under pressure to deter any offensive actions. I used to use this as a deterrent in my defense; if an employee did anything wrong, they would miss the employer's contribution, and that worked very well.

Bhajiya

Thank you so much, Bhajiya,

I also floated this query to some PF Consultants and many other HR friends, but still, all of them are silent and need time to clarify.

For All: This is not a question to avoid but needs to be discussed.

Regards,

Pankaj Chandan

Dear All,

Kindly provide your inputs for the following concern prevailing in our unit.

Our unit is located in an ESI non-covered area, and we have two associates in the On-roll category. We process their salaries through a software module designed to meet statutory requirements.

The issue at hand is that while processing payroll for the associates, ESI contributions are being deducted as per the Act, even though it is not applicable to our unit. Unfortunately, we are unable to change the configuration of the centralized payroll software.

As ESI is not relevant to our unit, what suggestions do you have regarding the deducted ESI amount? Should we provide this deducted ESI amount to the respective associates or handle it differently?

Your input is highly valuable.

Thanks, Vedha

The employer can withhold their contribution to the PF in case of willful misconduct or dismissal. The misconduct has to be proved in the domestic enquiry. PF is a statutory right. However, in cases of dismissal, employers withhold their share of the contribution. The employee receives funds only to the extent of their contribution.

People were shocked when I put that question in front of them.

Well, after having many discussions and my personal visit to the PF department, I came to know that "YES, the company can forfeit the employer's share from the contribution after willful misconduct or dismissal of an employee." However, they haven't clarified how they treat the employer-forfeited PF part on account.

Special thanks to Malikjs, Balaji Kuppuswamy, Bhajiya, and Jyoti for valuable comments.

Regards,

Pankaj Chandan

Dear all,

Particularly Mr. Chandan,

I am searching on the issue and have been able to find something on it.

The remarks mentioned in Form 10 dealing with the Forfeiture clause (I am not commenting upon the forfeiture owing to dismissal due to willful misconduct), I would like to bring to your kind notice the following:

The said remarks in Form 10 were significant when sub-para (3) of Para 69 and sub-para (6) of Para 69 of EPF Scheme were applicable, but the said sub-para (3) & (6) were omitted by G.S.R. 221, dated 15th March 1990 (w.e.f. 1-1-1990).

OLD Sub-para (3) of Para 69 deals with:
(3) Where a member withdraws any amount under sub-paragraph (2) the following provisions shall apply, namely:
(i) 75% of the employer's contribution and interest thereon shall be forfeited to the Fund if the period of the membership of the Fund is less than 3 years; or
(ii) 50% of the employer's contribution and interest thereon shall be forfeited to the Fund if the period of membership is 3 years or more but less than 5 years; or
(iii) 25% of the employer's contribution and interest thereon shall be forfeited to the Fund if the period of membership is 5 years or more but less than 10 years; or
(iv) 15% of the employer's contribution and interest thereon shall be forfeited to the Fund if the period of membership is 10 years or more but less than 15 years.

OLD Sub-para (6) of Para 69 deals with:
(6) Any sum forfeited to the Fund under this paragraph shall not be returned to the employer but shall be credited to the "Forfeiture Account" of the Fund.

Explanation:
(a) In computing the period of membership under subparagraph (3) for the first withdrawal under sub-paragraph (2) in respect of a member, his total service, exclusive of periods of breaks under the same employer or '[factory or other establishment] before 2[or after] the Scheme applied to the '[factory or other establishment], as well as the period of his membership whether of the Fund or of private provident funds of exempted '[factories or other establishment] or provident funds exempted under paragraph 27, immediately preceding the current membership of the Fund shall be included, provided that the member did not withdraw his provident fund moneys during such period.
(b) In computing the period of membership under sub-paragraph (3) for subsequent withdrawal under sub-paragraph (2), periods of membership whether of the Fund or of private provident funds of exempted 2[factories or other establishments or provident funds exempted under paragraph 27 immediately preceding the current membership of the Fund shall be included, provided that the member did not withdraw his provident fund money during such periods.

I hope I have been able to bring something more for discussion.

Regards,
Puneet Gupta, Adv.
(Industrial & Labour Law Advisor)
Ludhiana.
098720-46812

Dear all
Particularly Mr. Chandan

I am searching on the issue and has been able to found something on it.

The Remarks mentioned in Form 10 dealing with Forfeiture clause (I am not commenting upon the forfeiture owing to dismissal due to wilful misconduct) , I would like to brought to your kind notice the following:

The said remarks in Form 10 were significant when the sub para (3) of Para 69 and sub-para (6) of para 69 of EPF Scheme were applicable, but the said sub-para (3) & (6) were omitted by G. S.R. 221, dated 15th March, 1990 (w.e.f. 1-1-1990)

OLD Sub-para (3) of Para 69 deals with :-

(3) Where a member withdraws any amount under sub-paragraph (2) the following provisions shall apply, namely:—

(i) 75% of the employer's contribution and interest thereon shall be forfeited to the Fund if the period of the membership of the Fund is less than 3 years; or

(ii) 50% of the employer's contribution and interest thereon shall be forfeited to the Fund if the period of membership is 3 years or more but less “than 5 years; or

(iii) 25% of the employer's contribution and interest thereon shall be forfeited to the Fund if the period of membership is 5 years or more but less than 10 years; or

(iv)15% of the employer's contribution and interest thereon shall be forfeited to the Fund if the period of membership is 10 years or more but less than 15 years.

OLD Sub-para (6) of Para 69 deals with :-

(6) Any sum forfeited to the Fund under this paragraph shall not be returned to the employer but shall be credited to the “Forfeiture Account” of the Fund.

Explanation.—(a) In computing the period of membership under subparagraph (3) for the first withdrawal under sub-paragraph (2) in respect of a member, his total service, exclusive of periods of breaks under the same employer or ‘[factory or other establishment] before 2[or after] the Scheme applied to the ‘[factory or other establishment], as well as the period of his membership whether of the Fund or of private provident funds of exempted ‘factories or other establishment] or provident funds exempted under paragraph 27, immediately preceding the current membership of the Fund shall be included, provided that the member did not withdraw his] provident fund moneys during such period.

(b) In computing the period of membership under sub-pargraph (3) for subsequent withdrawal under sub-paragraph (2), periods of membership whether of the Fund or of private provident funds of exempted 2[factories or other establishments or provident funds exempted under paragraph 27 immediately preceding the current membership of the Fund shall be included, provided that the member did not withdraw his provident fund money during such periods.]


I hope I have been able to bring something more for discussion.

Regards

Puneet Gupta, Adv.
(Industrial & Labour Law Advisor)
Ludhiana.
098720-46812

Dear Pankaj,

We must appreciate Mr. Puneet for the valuable guidance he has provided. Now, the reasons behind the sentence on Form 10 are clear, and currently, that sentence is no longer present on Form 10. I am truly grateful to Mr. Puneet.

Thanks,
J.S. Malik

Million of thanks to Mr. Puneet for the kind guidance. Now I have something in my hand to challenge the PF officer who misguided me.

Thanks to Mr. Malik for the continuous follow-up of this post and for the valuable suggestions. I will appreciate it if seniors provide more guidance to us.

Regards,
Pankaj Chandan

I want to get clarification on the issue of forfeiture of PF. As you have mentioned that PF is with the Govt. Authority, but, in case the company has its own PF trust, can the company forfeit the PF amount in case of termination or any reason whatsoever.

Regards,

Manoj :icon1: