Why Are Employees Resigning Before 9 Years and 6 Months Over Pension Fund Concerns?

Pension Fund Withdrawal Concerns

A few employees are nearing 10 years of service. They have claimed that we need to resign before 9 years and 6 months of service; if not, the pension fund contribution cannot be withdrawn. As I understand from my labor consultant, he claims the person has to complete 10 years of service for this issue to occur. Why are people claiming that the employee should resign before he completes 9 years and 6 months to prevent this pension fund issue?

Understanding PF Pension Eligibility

What your labor consultant apprised you of regarding PF pension and the minimum period of years as PF members is perfectly correct. So please inform your employees and convince them about the need to continue their PF membership in order to attain eligibility for availing PF pension.

They want to resign so that their pension fund contributions can be withdrawn. If they complete 9 years and 6 months of service, they won't be able to withdraw their pension fund.

Question on Pension Fund Withdrawal

My question is whether I should permit them to resign before they complete 9 years and 6 months or just before they complete 10 years?

I think you are being deliberately vague to avoid stating the reality. It is not that they want to resign (they are not planning to leave) — they want to resign, withdraw the entire PF amount, and then make a fresh PF account. So, I assume they want you to continue paying them for the period until they can claim their PF? How will you pay them? If you pay them a salary, you are in violation of PF laws. If you pay them as consultants or contractors, at the same or similar level and following the same set of employment terms, then also you are violating the law. This can result in you being liable for penalty, interest, and PF contribution for the period, as well as prosecution for fraud.

Inform the employees that to be able to withdraw the pension contribution, they have to close their PF account, which means they need to withdraw the entire money, not just the pension contribution. So they will no longer earn interest, which is the best possible rate they can get in India for safe saving.

Further, they would need to be unemployed for the period from their resignation till the time they get the full money in their account and the PF department marks the existing UAN as closed.