Facing Penal Damages for Late P.F. Contributions: Can We Request a Waiver?

Salary Statement Preparation and P.F. Contributions

Salary statements of our company were not prepared for the months of April, May, and June as negotiations were ongoing with employees. In July, a salary increase was agreed upon, and arrears for April, May, and June were paid in July. We have deposited arrears of the P.F. amount relating to these three months in July. However, as the salary statements were prepared in July, the quantum of the P.F. amount was not known, and we could not deposit P.F. contributions within the respective due dates. Consequently, the Regional P.F. Commissioner has issued a notice to pay interest under Section 7Q and penal damages under Section 14B.

Request for Waiver of Penal Damages and Interest

Can we request the Regional P.F. Commissioner to waive the penal damages and interest charges, as the default is not willful, and we are not habitual defaulters in depositing P.F. contributions?

Your advice, please.

Regards,
BCSHASHI

In my view, salary negotiation cannot be a convincing ground for not depositing the P.F. contributions. Nevertheless, you can inform them of the reason and plead that you are not a willful defaulter. Cite the fact of depositing arrears to substantiate this point and pray for waiving of the interest and damages as the intention to default is absent. The P.F. Authority has the discretion to waive or at least to reduce damages.

Regards,
B. Saikumar

Salary Statement Preparation and Compliance Concerns

Salary statements were not prepared for three months. Does that mean the company did not pay salaries for those months? If so, you are in violation of the Payment of Wages Act and are liable for penalties. If you have paid the salary for each of those months, then there is absolutely no reason why PF should not be paid at the same time. PF on arrears can always be paid later.

Regards.

Yes, I agree with Saswatabanerjee. If you do not pay salaries or wages for three months, you are in violation of the Payment of Wages Act. If you have paid timely but not deposited PF contributions, then it also falls under the same act for penal damages under Section 14B and interest under Section 7Q. It does not matter whether you have paid the arrears later; PF contributions are due at the time of payment, and there is no violation if the contributions are paid on time.

I do not think that EPFO will waive off interest and damages. If you have paid the contribution on the arrear amount, then it's better to pay interest and damages for the delayed period, which will be a very minimal amount.

Regards,
Jitender.

The PF department may not waive the interest as they have to justify it to the members.

Regards,
Hrkpati

Clarification on Salary and PF Contributions

I have not understood what you are saying. When you say that the arrears salary for April, May, and June is paid in July, it means you have paid the regular salary for those months on time.

This quote is confusing. Have you deposited only the PF amount for arrears? Or have you deposited the PF amount for arrears in July, and then when did you deposit the PF amount for the regular salary?

Regarding Waiver of Penal Damages and Interest

You cannot request the Regional P.F. Commissioner to waive the penal damages and interest charges. You are a defaulter. You have defaulted for three months. Keep in mind, whether you pay salaries to employees or not, you are liable to make statutory remittances on the due dates.

If the salary is not paid, the PF is not due, right? Only when the salary is actually paid, you have to pay PF within the 15th of the next month.

Dear Saswata ji, I would like to reiterate what I previously mentioned. Regardless of whether you pay salaries to employees or not, you are still responsible for making statutory remittances by the due dates.

Dear Mr. Shashi Ji, regarding your query, here is a case study and Supreme Court judgment. Please see the attachment. However, what Mr. B. Saikumar is saying is true.

Regards,
PBS Kumar

Under Section 2(b) of the EPF & Misc. Provisions Act, 1952, the term "basic wages" has been defined as "which are paid or payable." This means that even if the wages are payable (but not actually paid), the EPF contribution is required to be paid on time. Therefore, EPFO appears to be within its jurisdiction and correct in claiming interest or damages for the delayed deposit of EPF dues. In my opinion, the establishment should have regularly deposited EPF contributions every month within the specified time without waiting for payment of arrears on any increase in such wages.

There is no harm in reaching out to the appropriate authority for a waiver of the interest/damages by citing the correct facts.

Thank you.

Understanding the Amendment to Para 32-A on Damages

In view of the amendment to Para 32-A on damages, effective from 2008, interest and damages can be chargeable separately, as held in Roma Henry's case referred to by learned member PBS Kumar. Since the delay in remitting contributions by the management in the instant case referred to by Mr. Shashi can be technically termed as default within the meaning of the provisions of the Act and the Scheme, it attracts damages. However, the P.F. Authority enjoys discretion to reduce damages under certain circumstances, and one of them can be the absence of the element of willful default. Since levying damages is a penal action, the P.F. Authority has to hear the employer regarding damages. During the course of this hearing, the employer can plead that the default is not intentional and can explain the circumstances to the satisfaction of the P.F. Commissioner.

Case Reference: Victor Francis V. United Commercial Bank 2013

In Victor Francis V. United Commercial Bank 2013 LLR 574 (Jhar. HC), it was held that a case merits the imposition of damages if the default is intentional. However, the employer needs to have very convincing grounds, not just loose excuses, to prove the bona fides of their actions. Therefore, there is no harm in praying for waiving or reduction of damages before the P.F. Authority if the hearing is not over.

Regards,
B. Saikumar

I fully agree with the views expressed by Shri B. Saikumar and Sh. Korgaonkar as above. However, I would also like to submit that there is hardly any proof to establish whether the delay in compliance was intentional or unintentional. In the modern setup of offices, the authorities who decide on such cases of personal hearings have no means to judge the employers' intentions. Moreover, by waiving damages at their level, it will certainly attract the attention of their superiors or the departmental vigilance. Therefore, in all such cases, damages are practically imposed (you may call it mechanical) regardless of the employer's plea. In today's era of Right to Information (RTI), it becomes challenging for any officer to take risks in such matters.

The golden rule is that delays in depositing statutory dues will definitely trigger the provisions of damages as well as interest as per the law, regardless of the compelling circumstances faced by the employers.

In my opinion, employers, particularly their HR officials/Time Office Incharge handling EPF or other labor law matters, should have a thorough knowledge of all procedures and practical aspects and ensure strict compliance to avoid facing such situations.

Thank you.

Saikumar,

In Victor Francis V. United Commercial Bank 2013 LLR 574 (Jhar. HC), it was held that a case merits the imposition of damages if the default is intentional. The citation pertains to the charge sheet issued to an employee and not to the reduction of damages under the PF Act.

Azim, Yes. You are right. The correct citation is APFC v. A.C. Nielsen Org, Garg Pvt. Ltd, 2013 LLR 653 (Guj HC). In the instant case, the P.F. Tribunal converts penal damages into one of a compensatory nature since the default is not willful. As the Victoria Francis case and Nielsen case appear one after another in the list of cases with me, I erroneously mentioned the Victoria Francis case. The error is regretted, and at the same time, thanks for the correction.

B. Saikumar HR and Labour Law consultant

Pending PF Demand and Court Order Impact

Our company has purchased land from another company, which had a pending demand of PF Rs. 550,000. Unfortunately, our purchase deal could not be completed due to certain reasons. We have already paid Rs. 275,000 to the landowner and another Rs. 275,000 to the PF department. Currently, the purchase deal is on hold due to a court order.

Now, the PF department has raised a demand of Rs. 1,200,000 against sections 7Q and 14B for the mentioned amount. I am questioning why we are liable to pay damages or interest to the PF department when the purchase deal is not finalized and the court has issued a stay order.

I would appreciate your valuable suggestions on an urgent basis.

Best regards, Sanjeev