DEFINITION AND COVERAGE OF INTERNATIONAL WORKER UNDER PROVIDENT FUND
An International Worker (IW) is any employee who is a foreign national working in India under an employer registered with the EPFO or an Indian employee who is working in a foreign country with which India has a Social Security Agreement (SSA). Every foreign worker employed with an establishment to whom the EPF applies must become a member of the provident fund (PF) from the first date of his/her employment. There is no minimum period of stay in India for activation of PF compliance. Hence, in relation to individuals working in India in establishments to which the EPF Act applies, an employee other than an Indian employee, holding other than an Indian passport, can be treated as an International Worker. One would also need to examine whether such an individual comes from a country with which India has signed a SSA, and if so, whether contributions need to be made in India or in the home country of this individual, based on the terms of the SSA.
If an employee is classified as an International Worker and provident fund contributions are payable in India (either because India does not have an SSA with the country from which such individual comes, or because the SSA benefits are not triggered based on various factors), the Indian employer will be required to make contributions under the EPF Act on the entire global income of such individuals (without any upper limit).
PF CONTRIBUTION RATE FOR INTERNATIONAL WORKERS
The PF contribution rate for foreign workers registered with EPF (or IWs) is 12 percent. The PF rate is calculated on full salary of the IW irrespective of whether the salary is remunerated in India or outside India, split payroll, or multiple country sources.
The major difference between regular Indian workers, and IWs, is that for Indian employees, companies are entitled to limit their provident fund contribution to 12% of INR 15,000 (i.e. INR 1,800 per month)(the upper limit), even if the ‘monthly pay’ (defined to mean basic wages, dearness allowance and retaining allowance) of the employee exceeds INR 15,000. In case of IW’s there is no upper limit.
Therefore, in the event of any alleged non-compliance with the obligation to make PF contributions for IWs, organizations can face significantly greater liability to make hefty payment on pending contributions (along with interest and penalties).
Exemptions
IWs are exempt from contribution towards PF only if their home country has a social security agreement (SSA) or economic-bi-lateral treaty with India
ELIGIBLE SERVICE FOR INTERNATIONAL WORKERS UNDER THE EMPLOYEES’ PENSION SCHEME, 1952
By a notification dated 05 October 2012, the Ministry of Labour of Employment has introduced sub-paragraph 4A to paragraph 43-A of the Employees’ Pension Scheme, 1952 (EPS) which deals specifically with international workers. Under the EPS, an employee is eligible for pension upon his retirement, if the employee has rendered the minimum eligible service of 10 years.
By virtue of this notification, the Ministry has clarified that in respect of an international worker from a country with which India has executed an SSA, eligibility for pension is determined on the total number of years of service rendered by the international worker under the social security programme of his home country and the number of years of service rendered in India in an establishment covered under the EPS. For example, if an employee has been employed in his home country for a period of 20 years and in India for a period of 7 years, the employee’s eligible service in India would be considered as 27 years and he would be eligible for pension.
However, it is relevant to note that the calculation of pension is made only on the number of years during which contributions were made under the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (EPF Act). In the example above, the international worker’s pension would be calculated on the 7 years during which contributions were made on his behalf under the EPF Act.
WITHDRAWAL RULES UNDER EPF
An international worker may withdraw the accumulated balance in the EPF account in one of the following situations:
1. at the time of retirements, that is, on or after 58 years of age.
2. in case of retirement due to permanent and total mental or physical incapacity to work.
3. in case of serious illness such as cancer, leprosy, or tuberculosis; or,
4. on completion of Indian employment, if the IW’s home country has an SSA with India.
The facility to receive PF refund on the date of completion of Indian employment is not available for IWs who are not covered under SSA.
WITHDRAWAL OF FUNDS UNDER EPS
The EPS regulations do not recognize the employer’s contribution to the pension scheme. Since only employer’s contributions are allocated to the EPF, the EPS does not entitle IWs to pension benefits when they leave India, regardless of accrued employer contributions.
The pension withdrawal is only available to employees who are covered under an SSA that has come to effect, and to employees who have not completed the eligible service of 10 years even after including the totalization of service under the respective SSAs.