TOPIC: Statutory, regulatory and various quasi-judicial bodies,Welfare schemes for vulnerable sections of the population by the Centre and States
What is EPFO?
The Employee’s Provident Fund Organization (EPFO) assists the Central Board of Trustees, which is a statutory body formed under the Employee’s Provident Fund and Miscellaneous Provisions Act, 1952.
The EPFO is under the administrative control of the Ministry of Labour and Employment.
The Central Board of Trustees consists of representatives of Government (both central & state), Employers and Employees. It administers a compulsory contributory Provident Fund, Pension Scheme and an Insurance Scheme for those workers employed in the organized sector of India.
What is the objective of the EPF?
The Act was enacted to give effect to one of the “Directive Principles of State Policy” which states that, ” the state shall endeavour to provide the right to work, to education and to public assistance in cases of unemployment, old-age, sickness and disablement within the limits of it’s economic capacity”.
It was created with the aim of providing financial security and stability to the elderly people. As soon as anyone starts working as an employee, he starts contributing a small part of his salary every month towards the EPF. The employer also contributes a part on behalf of the employee. This money could be later used by the employee when he is no longer fit to work or after his retirement. The EPF so created by a large number of employees is then invested for returns.
It is one of the largest social security organizations in the world in terms of members and the amount of financial transaction undertaken.
Contribution of Employer and Employee
Any company with over 20 employees is required by law to register with the EPFO.
Both the employee and the employer contribute 12 percent of the employee’s basic salary (plus dearness allowances, if any) into his EPF account.
The entire 12 percent of the employee’s contribution + 3.67 percent of the employer’s contribution goes to the EPF account of the employee.
The remaining 8.33 percent of the employer’s contribution goes to the Employee’s Pension Scheme (EPS).
The funds so collected from all the employees of the organization are then invested which generates an interest of around 8-12 percent. The interest rates are compounded annually and are decided by the government and the Central Board of Trustees.
Accumulation plus interest upon retirement, resignation, death.
Partial withdrawals allowed for specific expenses such as house construction, higher education, marriage, illness etc.
The money so invested in EPF, the interest earned and the money withdrawn after the specified period (5 years) is exempt from Income Tax. But, the interest on contributions made after April 1, 2016 will be taxed.
Universal Account Number (UAN)
The UAN is a 12-digit number allotted to each EPF member by the EPFO which gives him control of his EPF account and helps in minimizing the intermediation of the employer.
A UAN was launched by the NDA government in 2014 to allow portability of the EPF account when an employee switched his job. Earlier, every time a person changed his job, he had to go through the tedious task of getting his EPF account number changed, transferring the money from the older to the new account. The time consuming process often forced many to withdraw the money from the account. The UAN gives a unique identity to every PF subscriber which allows for easy portability of his EPF account.
- The central government has allotted Rs. 1,000 crore as contribution towards the Employer’s share in the EPF Scheme to encourage them to give more jobs to the youth.
- To boost employment through more production, the Centre had taken a policy decision on increasing over-time limit up to eight hours and on amendment to the EPF Act regarding the criteria for it’s coverage from 20 employees to 10.
- The EPFO in it’s Vision statement aims to cover all the workers in the country under Provident Fund, pension and life insurance by 2030 on a mandatory basis.