Is Our Small IT Company Legally Required to Register for EPF After Employee Count Changes?

Dear Seniors, I am working with an IT company with a current employee size of 18. We are not registered under EPF as the basic salary of every employee is above Rs. 6500/-. However, now that the ceiling is raised to Rs. 15000/-, one of our employees falls under this slab. As per my understanding, since we are below 20 in employee count, we are not bound to get registered under EPF.

I discovered from the employee database that we once reached a count of 22 employees, but as no one was under the 6500/- salary slab, we didn't get registered. I heard from someone that even if the employee size reaches 20, an organization has to get registered under EPF. Is this correct? I have read the Act and researched on this site but didn't find a clear answer.

Are we legally liable to get registered? Please advise.

Regards, Riya

Employee Coverage and EPF Registration Requirements

For the purpose of coverage, the number of employees is to be considered. When considering the number of employees, all employees, whether on regular payroll or outsourced and engaged casually for a day, should be taken into account. If your firm had 22 employees on any day, it will be covered effective from the date when there were 22 employees.

Once your establishment is covered, you will need to provide coverage for your employees. You can exclude employees whose basic salary is above Rs 6500 (now Rs 15000) for employee coverage.

In the case of coverage from an earlier date (the date when you had 20 or more employees), you will be required to pay contributions, interest, and damages on the contributions payable for those whose basic salary was less than Rs 6500.

If your Director receives a salary from the company, they should also be included in the count of employees for determining the coverage date. However, if your business is a partnership firm, the partners will not be considered employees and can be excluded.

Regards,
Madhu.T.K

As an HRD professional, you must be familiar with the basic laws governing PF. Please keep in mind that once the total headcount reaches 20 individuals, including those categorized as outsourced, contract labor, contractual, temporary, casuals, Naka labors, etc., regardless of their salary, you are required to register for PF from that specific date. Consequently, you become liable for ensuring compliance with the Act. Your responsibility, inclusive of interest and damages, commences from this date onwards, even if the headcount subsequently drops below 20.

Employers are not accountable for individuals considered as 'excluded employees' as defined under the Act. It is the employer's responsibility to demonstrate that a person falls within the 'excluded employee' category.

If you can establish that all employees are 'excluded employees,' your liability will amount to Rs. 7 per month, along with interest and damages.

This forum has previously hosted numerous discussions on this subject. I encourage you to conduct further research.

Our esteemed Madhu ji has elaborated on the inclusion of Directors/Partners when calculating the 20 headcounts.

Thank you.

EPF Applicability and Benefits

I reproduce a brief on EPF applicability and benefits. You may decide and implement.

• Every establishment which is a factory engaged in any industry specified in Schedule 1 and in which 20 or more persons are employed.

• Any other establishment employing 20 or more persons which the Central Government may, by notification, specify in this behalf. (The infancy period of 3 years has been withdrawn by ordinance w.e.f. 22-9-97).

• Any establishment employing even less than 20 persons can be covered voluntarily under section 1(4) of the Act.

Eligibility

Any person who is employed for work of an establishment or employed through a contractor in or in connection with the work of an establishment.

Benefits

Employees covered enjoy the benefit of social security in the form of an unattachable, unwithdrawable fund (except employees and employers contribute equally throughout the covered person's employment). This sum is payable normally on retirement or death. Other benefits include the Employees’ Pension Scheme and Employee’s Deposit Linked Insurance Fund.

Penal Provisions

Liable to be arrested without warrant being a cognizable offense. Defaults by an employer in paying contributions or inspection/administration charges attract imprisonment up to 3 years and fines up to Rs. 10,000 (S.14). For any retrospective application, all dues have to be paid by the employer with damages up to 100% of arrears.

Benefits at a Glance

1. Advance for the purchase of a dwelling site.
2. Advance for the purchase of a dwelling house/flat.
3. Advance for the construction of a house.
4. Advance for repayment of housing loan to State Govt. housing board or any other govt. recognized housing finance body.
5. Advance for illness, e.g., hospitalization for more than a month, major surgical operations, or suffering from TB, leprosy, paralysis, cancer, heart ailment, etc.
6. Advance for marriage of self/son/daughter/sister/brother.
7. Advance for post-matriculation education of son/daughter.
8. Advance for damage to property due to natural calamity (flood, riot, earthquake).
9. Advance for a member affected by a cut in the supply of electricity.
10. Advance for a member who is physically handicapped.

Understanding PF Registration Requirements

As an HR professional, you must be aware of the basic laws of PF. It is essential to note that once the total headcount in your establishment reaches 20 or more, including outsourced, contract labor, temporary, casual, Naka laborers, etc., regardless of their salary, you are required to register for PF from that date onwards and ensure compliance with the Act. Your liability, along with interest and damages, begins from that day onward, even if the headcount later falls below 20.

Employers are not responsible for individuals classified as 'excluded employees' under the Act. It is the employer's responsibility to prove that a person is indeed an 'excluded employee'. If you can demonstrate that all your employees fall under this category, your liability will be limited to Rs. 7 per month, plus interest and damages.

There have been previous discussions on this topic in this forum. I recommend conducting further research. Madhu Ji has provided valuable insights on how Directors/Partners are considered when calculating the 20-headcount threshold.

Mr. Korgaonkar's views on the coverage of an establishment or factory under the EPF & MP Act are accurate. There are two key aspects: the coverage of an establishment under the EPF Act and the eligibility of members for the Provident Fund. Once an establishment hires 20 or more employees, it falls under the EPF Act, and employees are enrolled as P.F. members based on their Basic + DA earnings. Employees with salaries exceeding Rs. 15,000 from September 1, 2014 (previously Rs. 6,500) are excluded, while those earning below Rs. 15,000 are enrolled.

Even retired employees and those above 58 years should be considered for coverage. Directors are also included in the headcount for Provident Fund Act coverage.

Regards

[QUOTE=Srinivas M Venkat;2180895]

The views expressed by Mr. Korgaonkar regarding the coverage of an Establishment or Factory under the EPF & MP Act are accurate. There are two aspects: the coverage of an Establishment or Factory under the EPF Act and the eligibility of members for the Provident Fund.

Once the Establishment employs 20 individuals or more, it falls under the purview of the EPF Act, and the employees will then be enrolled as PF members based on their Basic + DA earnings. For employees whose salary exceeds Rs. 15,000/- from 1.9.2014 (prior to this, the wage ceiling was Rs. 6,500/-), they will be excluded. Those employees earning PF wages below Rs. 15,000/- will be enrolled in the PF membership. Retired employees and those above the age of 58 years are also included for coverage purposes. Directors will also be considered for coverage under the Provident Fund Act.

Dear Seniors, One of my friends asked about PF registration formalities. He is running his own service sector business related to Tally software. His total employee strength is 6. He voluntarily wants to provide a PF facility to his employees. What is the procedure for PF registration in this case? Please provide me with information about this.

With Regards,
Raghu

Voluntary Coverage Under EPF

An establishment with a lesser number of employees will be voluntarily covered with the approval of the Central PF Commissioner only, I presume. Before proceeding, make sure to confirm that he would follow the guidelines and continue to cover irrespective of any financial crisis in the future. This is because coverage, by simple sense, will always look sound, but the commitments as an employer would be very high, say to the tune of around 13.61% of the salary. We cannot say that the salary would be fixed forever, but we should anticipate that there could be a notification even to include all earnings that the employee earns, though presently only basic and DA subject to a maximum of Rs 15,000 are considered as salary.

In place of PF, there can be a number of insurance or other schemes wherein the employee and the employer can contribute a sum every month, and at the end of a certain period, the accumulated amount would be available to the employee. Why don't you try any of these schemes for them?

For voluntary coverage, you may ask him to contact the local PF enforcement Officer to start with.

Regards,
Madhu.T.K