Is It Legal for Small Industries to Avoid EPF Pension by Rehiring Employees?

Peculiar Practice in Small-Scale Industry

Recently, a peculiar practice followed by a small-scale industry with over 400 employees came to my notice. An employee, before completing 10 years of service in the company, is asked to resign, withdraw their total EPF contribution, and then rejoin as a new employee. When I inquired with the employer, the response was that this practice is implemented to avoid providing a pension under the EPF pension scheme.

Now, my questions are:
1. Is the practice followed by the employer fair in the eyes of the law?
2. Does a company have to pay a pension to the beneficiary when it also contributes to the EPF pension scheme?

Regards,
Prashant K. Dalai.
**Location**: India
epf pension, pension scheme, small-scale industry

The practice of asking employees to resign before completing 10 years of service to avoid providing pension benefits under the EPF pension scheme is not fair and is likely to be in violation of Indian labor laws. Here are the key points to consider:

1. Legality of the Practice:
- The Employees' Provident Funds and Miscellaneous Provisions Act, 1952, governs the EPF scheme in India. According to this act, employees who have completed 10 years of service are eligible for pension benefits under the scheme. Therefore, forcing employees to resign before reaching this threshold to avoid pension obligations is likely to be considered illegal.

2. Employer's Obligation:
- When a company contributes to the EPF pension scheme, it is mandatory for the employer to pay pension benefits to eligible employees who have completed the required years of service. By contributing to the scheme, the employer commits to providing retirement benefits to employees as per the provisions of the EPF Act.

3. Consequences of Non-Compliance:
- Engaging in such practices can lead to legal repercussions for the employer, including penalties, fines, and potential legal action by affected employees. It is essential for companies to adhere to labor laws and fulfill their obligations towards employees, including providing pension benefits as mandated by the EPF scheme.

4. Recommended Steps:
- If you believe that this practice is unfair or illegal, you may consider reporting the issue to the appropriate labor authorities in India for further investigation. Employees who have been affected by this practice may also seek legal advice to understand their rights and options for recourse.

In conclusion, it is crucial for employers to comply with labor laws and uphold their responsibilities towards employees, including providing pension benefits as stipulated under the EPF pension scheme.