Facing EPF Payment Issues for Past Employees: What Happens Next and How to Protect Your Business?

We run a small-scale industry. From February 2010 to April 2010, for three months, our employee strength increased to above 20. However, unknowingly, we did not deduct EPF contributions from employees and did not remit them to the EPF department. Although we continued paying ESI, which is applicable for industries with more than 10 employees.

After April 2010, the number of employees reduced to below 20, and we continued paying ESI but not EPF. In May 2011, the employee count increased again to above 20, and we started paying EPF from May 2011.

Now, an EPF inspector visited us, collected all records, and may ask us to pay for the period from February 2010 to May 2011. However, 80% of the laborers/workers are no longer working with us and are untraceable. In such a scenario, who will receive that money? Will the inspector ask us to pay both our contribution and the laborers' contribution? What typically happens in these cases, and how can we safeguard our interests?

As per the EPF Act, your organization will be covered from the month or date at which you employ 20 or more workers, even if the strength is reduced afterwards.

Regards

We understand that. What about the PF for the employees who left and are untraceable? Will the PF department demand interest and penalty?

For the employees who left and are untraceable, you can apply for a waiver for the employee share, but approval of such a waiver is quite difficult to obtain. EPFO will surely demand interest and penalties. The best option is to cover your organization from the current month. How to do that may vary depending on different views held by officers and people.

Precedent for Current Month Coverage

Is there any precedent that can be shown to cover from the current month? If it has already been done by another officer, it will strengthen our case.

Dear Prashant Patil,

As suggested by you, suppose we have shown the current date of ESI and PF liability. Also, everything got settled in the current scenario with specific officers of ESI & PF respectively. But in the future, another officer may come and ask for a commission for the previous adjustment. What is the solution?

Regards,

I was advised by an advocate that we can approach the court and request an exemption since beneficiaries (old employees) are not available or traceable. The EPF department is supposed to look after the interests of employees. When they are not available, how can EPF benefit them? According to this advocate, he has some references to court verdicts on similar favorable judgments.

May I know the opinions of other experts?

After your coverage data is fixed and the report is prepared and submitted by the EPF inspector, it becomes very difficult to change the date for a new inspector due to numerous problems. Technically, it is possible but not practical.

It is true that your company has to be covered as and when your company's strength reaches 20 and above, inclusive of regular, contract, security, and even one-time employees. Not knowing the act is not an excuse. It is the liability on the part of the principal employer, whether the employee is in service or not. Once the strength reaches 20, you become a coverable unit. A waiver may be claimed if you currently have 20 or more employees who have worked earlier and are expressing their willingness that their share has not been deducted from their monthly salary/wages. The decision on this issue lies with the responsible authority.

Thank you.

Handling EPF Contributions for Default Periods

I had faced a similar difficulty previously where the PF Inspector had sealed all the bank accounts of the firm until the receipt of the defaulted amount. In my opinion, it is the best practice and option for an employer to pay both employees' and employers' contributions for the default period. The additional respective challans for depositing the subject amount may be prepared and sent separately to the concerned PF commissioner's office along with the monthly return, explaining the situation in detail. The issue can be closed once and for all.

Regards,
Arun Dixit