Can a Startup Legally Skip PF Contributions? Seeking Clarity on Employee Rights

Recently, I received an offer from a startup company. While reviewing the offer, I noticed that there was no mention of PF contribution from the company. I discussed this with a company official, who informed me that the company will not be contributing to the PF of the employee.

However, during our discussion, they also mentioned that by January 2012, they plan to start the business and hire around 50 employees. According to the PF Act, a company with an employee strength of 20 or more must be registered with the PF office and contribute to employees' PF.

I am really surprised and unsure about what to do in this situation. Under what circumstances can a company avoid paying PF contributions? Is there a provision that allows companies registered in Tamil Nadu or Pondicherry to bypass the PF Act?

I would appreciate your help in understanding the PF rules.

Best Regards,

EPF Coverage for Companies

A company will be covered by EPF only when it starts business. However, if the company intends to appoint 20 or more employees, there should be a provision for EPF. Therefore, the company's defense in saying that the company will not have PF is not right. Either they wish to hide it from PF authorities or will work with less than 20 employees. In the former case, I will suggest that the company will not be professionally good to work with.

Regards,
Madhu.T.K

There may be a chance that they do not go beyond 20 employees, but setting a target of 50 could help attract the needed employees at this time. As Madhu said, if they recruit more than 20 employees in the future and hide this from the PF department, it will not be legal or professional.

I have observed the same issue in my company, as I am newly recruited here. They are not paying any PF for employees, and we do not receive any payslip or salary slip. When I inquired, they mentioned that they deduct a certain amount as membership fees, which they consider sufficient as deductions. This amount is non-refundable to employees upon leaving the company. Is this acceptable according to the law?

Employee Salary and PF Contribution

But what if all the employees have their salary above Rs. 6500? Would the company be right on its part for not contributing to PF? Check what about your basic salary? And again, have a discussion with them.

Understanding EPF Coverage for Establishments

If your company has engaged 20 employees at any point in time, your establishment will come under the Employees' Provident Fund (EPF) from the date on which your employee count exceeded 19 or reached 20. This includes casual employees as well. Once your establishment is covered, it will continue to be covered even if you employ fewer than 20 employees.

Now, if you have 20 or more employees, the establishment will be covered even if all of them receive a PF qualifying salary (Basic + DA) greater than Rs 6500. In such circumstances, you will need to submit NIL returns every month. If any employee is appointed with a salary of Rs 6500 or less, you should start contributing for them. It is important to note that casual engagements will also be considered for contribution payments.

Addressing Unfair Labor Practices

Sowmya's case is subject to enforcement. Your establishment is practicing unfair labor policies. The employer has a legal obligation to provide payslips to employees and cannot deduct any amount as 'membership fees,' especially non-refundable fees. This practice is unjustifiable, and the company may be engaging in it with support from government authorities. This matter needs to be addressed with the relevant authorities such as EPF Enforcement Officers, ESI Social Security Officers, and Labor Officers.

Regards,
Madhu.T.K