EPF scheme for expatriate employees: clarification required

Government of India has vide two separate notifications dated October 1, 2008, extended the Employees’ Provident Fund and Pension Scheme to all “international workers”. The term international worker includes a foreign employee working for an establishment in India to which PF Act applies. Thus, the expatriate employees will normally fall in the definition of international worker.

Prior to this amendment, it was optional for an expatriate employee to participate in the EPF scheme. However, after amendment every expatriate employee employed with an establishment to whom EPF scheme applies, irrespective of the salary earned by him, is required to participate in the EPF scheme.

The EPF contribution will be calculated on the total salary earned by the employee, whether received in or outside India. Expatriate employees will be required to contribute 12% (8.33% to PF and 3.67% to Pension Scheme) of their base pay and similar amount will be contributed by employer.

In the context of the EPF scheme, the Social Security Agreements (SSA) entered by India with other countries assume special importance.

At present India has made SSA with three countries only, namely Germany, France and Belgium. Labour Ministry is working towards securing SSAs with various countries such as Netherlands, USA, Australia, Switzerland, Norway, Sweden, Luxembourg etc.,

Implications of SSA on Provident Fund Scheme and Pension Scheme are as under:

a) Where employee belongs to a country with whom

India has SSA :

(i) Participation in Provident Fund Scheme — Expatriate employee is exemp-ted from participating in the Indian EPF scheme provided such ex-patriate empl-oyee is participating in the social security scheme in his country of origin.

(ii) Circumstances permitting withdrawal of accumulated fund - In case ex-patriate employee participates in EPF Scheme, he shall be entitled to benefit as prescribed in relevant SSA.Implications on Pension Scheme:

Where the concerned person is a member and has not rendered the prescribed eligible service on the date of exit or on attaining the 58 years of age, whichever is earlier, he shall be entitled to benefit as prescribed in the relevant SSA.

b) Where employee belongs to a country with whom India does not have SSA:

(i) Participation in Provident Fund Scheme — It is man-datory to participate in Indian PF Scheme irrespective of the fact whether he is participating in his country of origin or not.

(ii) Circumstances permitting withdrawal of accumulated fund — There is no specific provision as to when an ex-patriate employee can withdraw the fund in the amended scheme.

Implications on pension scheme:

Where the concerned person is a member and has not rendered the prescribed eligible service on the date of exit or on attaining the 58 years of age, whichever is earlier, he shall be entitled to withdr-awal benefit, as may be available to the Indian employees in that country. This, in such cases, principle of reciprocity will be followed.

A careful reading of the amended scheme clearly shows that whereas the scheme is reasonably worded and fairly clear in those cases where an expatriate employee belongs to a country with which India has signed SSA. But there is neither clarity nor adequate provisions in those cases where an employee belongs to a country with whom India does not have SSA. This issue is particularly significant because India at present has signed SSA only with three countries.

Due to aforesaid reason, expatriate employees are facing serious problems in India particularly because 24% of their salary gets blocked in the EPF scheme.

It is therefore, necessary that the Government should immediately review the EPF notifications to make them reasonable for all expatriate employees, whether they belong to SSA countries or not.

Further, the entire scheme should be so devised that expatriate employees should be able to either withdraw the contributions made by them or transfer the said contribution to their country of origin when they leave the service in India.

H P Agrawal
(Author is a Partner in S S Kothari Mehta & Co.)

hp.agrawal@sskmin.com