How Can My Sister's Company Handle EPF Non-Payment Allegations and Avoid Penalties?

Hello Experts,

My sister, who is also an HR professional in a company, is facing a Sec 7A notice and recovery under Section 14 of the EPF Act. The allegation against the company is that EPF payments have not been made since 2018.

However, the company provided an option to its employees to opt out of EPF, and the majority of employees agreed to this. As a result, the company stopped deducting EPF contributions for these employees and instructed their EPF consultant to draft a response to the RPFO. Unfortunately, it appears that the consultant did not submit the response to the RPFO, leading the company to face consequences.

I am seeking advice on how to proceed in dealing with the RPFO, as they have imposed a substantial liability and penalty on the company. Your valuable suggestions are greatly appreciated.

Thank you.

Hello,

It appears that the EPF consultant did not guide the company properly. Legally, it is not possible to stop deducted EPF contributions if employment is active. Any written letter of consent to stop contributions is null and void under EPF law.

If the employees in question have re-entered the service (new joining) after stopping EPF, then only the company has some room to defend.

Thank you.

Dear Rahul,

Is there any ruling or judgment regarding the inability to stop PF contributions? Please share if possible.

Regards,
Anuradha

No ruling or judgment is required. The act is very specific - read it once again. It is not possible to stop the contribution of covered employees by any means. Face the 7A hearing and deposit the shortfall amount with penal interest, etc., at the earliest to avoid further future problems. More delay will create more liability.

S K Bandyopadhyay (WB, Howrah)

Dear Anuradha, Mr. Bandyopadhyay has rightly said, it is in the law. For more clarity, you may refer to "The Employees’ Provident Funds Scheme, 1952," Para 26 (6), which is as follows:

"Notwithstanding anything contained in this paragraph [an officer not below the rank of an Assistant Provident Fund Commissioner] may, on the joint request in writing, of any employee of a factory or other establishment to which this Scheme applies and his employer, enroll such employee as a member or allow him to contribute more than rupees [fifteen thousand rupees] of his pay per month if he is already a member of the Fund and thereupon such employee shall be entitled to the benefits and shall be subject to the conditions of the Fund, provided that the employer gives an undertaking in writing that he shall pay the administrative charges payable and shall comply with all statutory provisions in respect of such employee."

In the above section, you will find the answer to your query.

Regards, Rahul Sindhwani

Dear Rahul, thanks for once again responding. The employees for whom the EPF contribution was mutually agreed to be stopped are those who are drawing more than Rs 15,000 per month as basic pay. Prior to that, the total deductions done for all the employees were limited to a maximum basic salary of Rs 15,000 per month.

Thus, as PF is a tax-saving and retirement benefit measure, if some employees decide not to have any contribution done when their salaries are above Rs 15,000 per month, how can that be illegal? All these employees who had basic pay beyond Rs 15,000 are contributing Rs 150,000 in other tax-saving and retirement measures like ELSS, PPF, etc.

Also, I understand that "The Employees’ Provident Funds Scheme, 1952" Para 26 (6) deals with EPS and not much with rescinding the contributions of excluded members desirous of withdrawing from the scheme.

Once again, thanks a ton for your time and responses.

Regards, Anuradha

EPFO Membership and Basic Salary

It appears that there are employees who are members of the EPFO, but their basic salary has crossed ₹15,000. Those employees are willing to stop PF contributions. Please note, as per the definition of "Excluded Employees" under the PF & Misc. Act:

- Employees who have joined with their first service with a basic salary of more than ₹15,000.
- Employees who were members of the EPFO but discontinued membership after withdrawing the accumulated amount and then joined another organization with a basic salary of more than ₹15,000.
- Employees who retired on or after attaining the age of 58 years, withdrew the PF accumulation, and then joined another organization regardless of the basic salary.

Any employee who continues as a member of the EPFO under conditions other than those mentioned above, even if their basic salary is more than ₹15,000, will be considered a covered employee; otherwise, it would be illegal. The discontinuation of EPFO membership cannot be based on the wish or will of either the employee or the employer.

S K Bandyopadhyay (WB, Howrah)

Dear Anuradha, I am sharing a link to the EPF FAQ. https://www.epfindia.gov.in/site_en/faq.php Kindly refer to questions no. 36, 41, and 42 and their answers. Apart from this, there are a few contributions that are mandatory under law (just like the Labour Welfare Fund Act) which have to be paid. This is why it is illegal to stop paying contributions for employees whose salary is above Rs 15,000. However, the company is only liable to pay contributions up to Rs 15,000. Contributions on salary above Rs 15,000 are voluntary.

Apart from this, para 26 (6) is a sub-part of Chapter IV of "The Employees’ Provident Funds Scheme, 1952," which talks about the membership of the Fund. I am sharing the scheme for your reference as well. You may cross-check details on pages 32 and 33 for more clarity.

Regards, Rahul Sindhwani

Handling EPFO Notices Under Section 7A

Now it is a regular feature by EPFO to issue notices under Section 7A. Did your company collect requests from the employees not to deduct PF from their salaries? Your PF consultant does not seem to provide the right guidelines to the company.

Now the only solution is to appear before the APFC and explain the position. Show all the records (wages register, attendance register, bank statement, vouchers, ledger, etc.) in support of your company's stand. Request them to consider the case sympathetically.

However, this need not be amicably solved. The PF stand is legal, and it should be obeyed by the company.

The purpose of the above is to get ample time and also payment (interest, damages, etc.) in suitable installments, thus providing some relief to the company.