It is mandatory to register for Employee Provident Fun (EPF) as soon as the strength of your organization exceeds 20 employees. In this article, we look at everything you need to know about the Employee Provident Fund or EPF scheme.
The Employee Provident Fund (EPF): What is EPF Scheme?
Employees` Provident Fund or EPF is a scheme managed by the government that promotes savings for professionals in the service sector. It is a scheme managed under the Employees' Provident Funds and Miscellaneous Provisions Act, of 1952, by the Employees' Provident Fund Organisation (EPFO).
The scheme helps employees build a sizable retirement benefits fund, and it was introduced by the Indian government, which is how the scheme works. Due to the high Indian population and the extreme poverty levels in some regions, this plan has elevated the poverty levels.
What a Business Needs to Know About EPF Scheme
According to the EPF scheme, a working employee can contribute a certain amount of money towards the scheme; the employer also has to contribute a similar amount towards the employees' scheme. The employee gets a lump sum amount (which includes his/her contribution and that of the employer) with interest upon retirement or two months after switching jobs. Note that EPF is one of the critical payroll compliances in India.
Employees have a lot of confusion regarding how the EPF works, their contributions; they are withdrawal options under the EPF Scheme. Let us get to understand how the EPF works and some Basics about the scheme.
How EPF Scheme works
Under this scheme, an employee has to pay a certain amount of money and then the employer has to contribute equally to the EPF monthly. It is an individual decision and responsibility if the employee wants to deposit their entire salary to the EPF account.
Applicability of the EPF Act
The EPF program is mandatory for any business or company establishment, either public or private, that has employed a minimum of 20 people. However, companies are exempted from this rule, and that is certain enterprises having less than 20 employees. These companies can opt for voluntary registration, and the employees are eligible for this benefit. The employer must obtain EPF registration within one month of attaining Employee strength.
A Universal Account Number (UAN) is a unique number allocated to every member of the EPFO, and this facility helps the employee view all members’ IDs in one place. All member IDs allotted to the employee by different business establishments are linked to his/her UAN.
When an employee joins a new establishment, he/she has to provide their UAN so that the employer can link their Provident Fund (PF) account. UAN helps with transferring and withdrawing funds from PF accounts quite quickly.
EPF Contribution Breakup
For most employees, the contribution rate is 12% of the fixed wages, including HRA (House Rent Allowance). There is an exception when the 10% rate is applicable, for instance, if the company; has less than 20 employees, has suffered losses more than its entire net worth. Also, there's an exemption when a company belongs to the beedi, brick, jute, or Guar gum industry and is a sick industry and has been declared so by the BIFR (Board for Industrial and Financial Reconstruction).
The whole 12% of the employee's salary goes to the EPF account while the employers' contribution is divided as the following; 8.33% goes to the Pension Fund, and the 3.67% goes to the EPF account. The EPF is calculated on the fixed part of the salary, excluding the house rent allowance.
EPF Interest Rate
The interest rate offered by Employee's Provident Fund Organization (EFPO) to the employees is currently at 8.55%. The Ministry of Labour and employment has reduced the interest rate by 10 basis points. The interest is calculated based on the monthly running balance of the employee.
EPF Payment and Return Filling Due Date
EPF is deducted from every employees salary, and the payment due date is by the 15th of the following month. For instance, if the employer wants to make deposits for September on the EPF account, you should make the payment by the 15th of October.
The due date of the EPF return is the same as the payment, which means as a company, you can file them on the same date, which is before the 15th of the following month. The EPF annual filling return due date is the 25th of April the following year. A government notification can change the due dates; as an employer, you should note that.
Penalty for Late Payment
Keeping up with due dates can be tiring at times, and other times it can lead one to forget. Suppose there's a delay in filing returns and payments beyond a specified due date. In that case, the following penalties will apply: Every day that passed with delay in depositing EPF contributions, there is an interest of 12% p.a. is charged.
Then there's the case of challan failure on payments, and then the penalty is calculated on the following rates: 5% interest Per Annum for delays of up to 2 months. 10% interest per annum for payment delay of up to 2-4 months, 15% interest p.a. for delays in 4-6 months, and a 25% interest p.a. for payment delays totalling up to more than 6 months.
EPF Registration Process for Employers
Compliance is required for companies and business institutions (both public and private enterprises) EFPO provides online services that make it easy to comply. This includes registration of a business company, monthly returns filling alongside electronic payments of all contributions and charges.
Here is a compiled list, one that is required for a successful EPF registration:
Name and address of the business establishment
Details of the head office and all the branches of operation.
The incorporation date of the company establishment.
Fill in all the details of your employees and indicate the total employees' strength.
Legal statuses of the company whether it is public or private.
All the physical and non-physical addresses of the directors, partners and the owners.
The company's banking details
Payment Account Number (PAN) details.
Total salary amount of the employees
Employees` basic details such as name, date of birth, retirement date, the date they joined the company, salary paid, and job group number.
Here are the steps you need to follow for EPF registration
Visit the EPFO website and click on the `Establishment Registration` on the top right side of the page.
Download the instruction manual and read it carefully before you proceed to register your establishment.
Once you are done, click on the sign-up button.
To create an account, enter your name, email, mobile number, the verification code, and then click on the Sign-Up segment.
The following window selects `Registration for EPFO-ESCI` and clicks on the segment `Apply for new Registration.`
Once you click on the apply button, then proceed to enter details of your establishment. Contact persons, employment details, employee details, branch and divisions, activities, and then attach all the documents on the next page.
Then click on submit.
Next, register your Digital Signature Certificate (DSC) to help authenticate the already provided and submitted details.
In the end, you will receive a confirmation email from Shram Suvidha (an Indian web portal platform that provides all labor compliances) after registering your DSC.
Due to the seriousness of the EFP Scheme, there's a need to be thorough when registration is taking place. In the case of a company, firm, society, trust or sole proprietorship, the following documents are required:
An incorporation certificate is a registration certificate for Firms.
ID proof for the directors, partners, and members.
The list of all the directors, partners, and members alongside their contact details.
The DSC signatory authority of a director.
In the case of a company, you produce a Memorandum of Association (MOA) and Articles of Association.
In the case of Sole proprietorship, you provide a PAN (permanent account number) card, Residential address proof, and a mobile number.
Along with all the certificates mentioned above, all Establishments in India must have
A GST certificate registered under Goods and Services Tax (GST).
First sale invoice
A cross cancelled cheque
Invoice of first inventory and machine purchase
Salary and EPF statement.
Name and address of the bank associated with the business.
Date of an employee joining the company alongside their dates of birth and their father's name.
A monthly employee strength record.
Salary and wages registration, in addition, provide balance sheets from day one to the date of registration.
Under the EPF Scheme, an employer is required to pay a minimum and fixed salary of Rs 15,000 to be able to meet EPF contribution, the insurance cover for an employee is Rs 3 Lakh per member. A business must also perform regular EPF-related tasks such as PF registration; generate UAN for employees without PF payments, and PF return.
Employee Provident Fund Registration for Employees
There are constant transfers from job to job either by the government or a personal decision to change jobs. For this reason, an employer needs to register all their employees on the EPFO Portal. This is done using an existing UAN, Aadhaar number, date of birth, and name. If an employee at the time of employment, does not have not a UAN number, the employer needs to generate them the number using these documents;
Name, date of birth, gender, nationality, and marital status of the employee
The date they joined the company.
Their monthly wages as of the date of joining the establishment.
Know Your Customer (KYC) details of the employee such as their Bank account details, Aadhaar card (which is mandatory), a driving license or a passport, and a Permanent Account Number (PAN).
What are the Benefits of EPF (Employment Provident Fund)?
So far, EPF has been very advantageous to the economy and the last days of an employee, and there are numerous benefits; let us look at some of them:
1. Tax Exemptions
Under section 80C of the Income Tax Act, EPF falls under tax exemptions, and also, the interest gained from the PF is exempted from tax. In that same light, an employee is exempted from paying taxes on EPF withdrawal to complete services at an organization for five years.
2. Life Insurance Aids
Under the Employees Deposit Linked Insurance (EDLI) Scheme, the EPFO provides insurance benefits to all PF holders. In case of the death of a PF insured member, they are next of kin (nominated) are entitled to receive a lump sum amount that the employee accumulated.
3. Pension benefits
An employee will be eligible for a lifelong pension if he or she surpasses a decade of membership contribution; this is per the Employees` Pension Scheme (EPS) of 1995. Also, the amount the employer contributes towards EPF falls under (EPS).
4. Premature withdrawal option
After about 5 to 10 years of employee contribution membership, he or she may decide to withdraw partial amounts from their PF. The employees provident fund advances withdrawals cannot be made for vague reasons, so there is a need to have valid reasons such as medical issues, buying a house, children's education, and their marriages or payments of loans.
5. Higher capital gains
There are interests incurred from deposited EPF, which is fixed by the PF online Scheme. These results in increased gains, and also on the maturity, PF extends rewards to employees. It increases the employees` assets, thus causing capital appreciations.
6. Funds emergency
The EPF scheme provides an employee with an opportunity to plan for unforeseen circumstances in the future. In case of an emergency, an employee can partially withdraw from their EPF account and cater to their needs.
7. Higher credits from the PF Kitty
5-15% of an employees` EPF is put into Exchange Traded Funds (ETF's) by the EPFO. As a result, the employee has profits in the future. Employees must invest money in specific areas such as government securities, these investments are not visible on the EPF accounts, and an employee isn't eligible to make changes either.
It is highly advisable that businesses or any other form of investments in India have an EPF Scheme, this is because it serves both the needs of the employer and the employee. With the complexity that comes with EPF, this post should help you understand it better.