Provident Fund Dilemma: Can My Friend Start Coverage with Fewer Than 20 Employees?

One of my friends currently has 18 employees and is expected to reach 20 within the next two months. Can he start providing Provident Fund coverage this month even with fewer than 20 employees?

Voluntary Coverage Under EPF Act 1952

Section 1(4) of the EPF Act 1952 provides for voluntary coverage upon acceptance of the request by the Central PF Commissioner. The provision is extracted below:

(4) Notwithstanding anything contained in sub-section (3) of this section or sub-section (1) of section 16, where it appears to the Central Provident Fund Commissioner, whether on an application made to him in this behalf or otherwise, that the employer and the majority of employees in relation to any establishment have agreed that the provisions of this Act should be made applicable to the establishment, he may, by notification in the Official Gazette, apply the provisions of this Act to that establishment on and from the date of such agreement or from any subsequent date specified in such agreement.

So, based on this provision, first, make a joint agreement with all employees for voluntary coverage and then approach the Central PF Commissioner for consent. The agreement with the employees shall indicate a date for the commencement of PF applicability, and thereafter, deduct the contribution of employees and deposit it in a separate account along with the employer's share. Once the process is over, the amount can be transferred to EPFO without incurring any additional liability.

With the current staff strength of 18, you do not have to take any steps for PF coverage. However, once the staff count reaches 20, you must initiate the necessary steps to ensure coverage under the PF Act.

In my opinion, keep the strength below 20 and do not opt for PF as far as possible. It is more of a hassle. Give that additional amount to your employees directly in hand.

If salaries are above 15k, then in any case, neither PF deduction nor employer PF is compulsory as far as I know.

Consideration of Employee Count for PF Compliance

The number 20 is considered, including contractual employees, if any, in your organization, even if their PF compliance is taken care of by the contractor. Please check the same (may include office boy, sweeper, security staff, etc.).

Even if in the future, you have 20 employees, and the majority of your employees' PF gross is more than ₹15,000, with only a few below ₹15,000, then your organization will still be covered under EPFO.

In actuality, if you are at 18 employees after fulfilling all the above conditions, you may apply for voluntary coverage.

S K Bandyopadhyay (WB, Howrah)
CEO-USD HR Solutions

Registration for Provident Fund with Fewer Employees

The establishment can register at the present strength of employees if the management is keen to extend the facility to its employees. However, when you ask your friend to discuss this matter with the management, your friend's wishes hold no meaning. Establishments with fewer than 20 employees can register, and the rate is 10%.

The management may not want to do so until the establishment comes under EPF purview because the management would have to bear an extra 10-12%, which is questionable during this pandemic situation. It would be best to wait until the establishment reaches 20 employees.

It is called voluntary coverage if the staff strength is less than 20. If it exceeds 20, PF coverage is mandatory.