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FAQs Social Security Benefits in India

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​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​published on 16 July 2024 | reading time approx. 13 minutes

 

​India’s extensive social security system is designed to safeguard the welfare & rights of its workforce through various legislations. Let’s discover the intricacies of social benefits in India, including its key legislation​s, eligibility criteria, and statutory contributions such as under the EPF Act and learn about the recent updates of the court rulings affecting the international workers via these Frequently Asked Questions (FAQs).​
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​What is Social Security in India? What are the different statutory benefits under Social Security in India?

India has a robust social security legislative framework governing social security, encompassing multiple labour laws and regulations. These laws govern various aspects of social security, particularly focusing on the welfare of the workforce. The primary objective of these measures is to foster sound industrial relations, cultivate a high-quality work environment, ensure legislative compliance, and mitigate risks such as accidents and health concerns. Moreover, social security initiatives aim to safeguard against social risks such as old age, maternity, and unemployment. In this article we cover in detail the key components of Employees Provident Funds and Miscellaneous Provisions Act, 1952 (“EPF Act”).
   

​What are the key legislations dealing with social security in India?​

India has several key social security laws, including the Employees’ Compensation Act, 1923; the Employees’ State Insurance Act, 1948; the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952; the Maternity Benefit Act, 1961; the Payment of Gratuity Act, 1972; the Cine Workers Welfare Fund Act, 1981; the Building and Other Construction Workers Welfare Cess Act, 1996; and the Unorganised Workers' Social Security Act, 2008. Certain states in India have their own local legislation governing Labour Welfare Fund (LWF). For example, in Maharashtra, there is the Maharashtra Labour Welfare Fund Act, 1953; in Karnataka, it is the Karnataka Labour Welfare Fund Act, 1965, and in Tamil Nadu, there is the Tamil Nadu Labour Welfare Fund Act, 1972. These state-specific laws determine the contribution frequency and amount to the LWF, which varies from state to state. Both employers and workers contribute to the LWF for the benefit of workers. Contributions can be made annually or half-yearly, depending on the state's regulations. Employers are required to deduct and contribute the specified amount from the salaries of workers and submit it to the state Labour Welfare Board within the prescribed timelines.
   

​Who eligible to avail of social security benefits under these laws?​

Eligibility for social security benefits may vary depending on factors such as employment status, salary levels, and the nature of work. It is observed that government-controlled social security schemes in India primarily cater to a limited segment of the workforce. The obligatory contributions by employers towards social benefits vary significantly, obliging contributions from all enterprises based on the employee threshold, typically ranging from a minimum of 10 to 20 employees or more. Furthermore, mandatory coverage under specific laws is contingent upon thresholds linked to employees' salary levels.
   

​What is the scope of social security benefits in India?​

In India, social security benefits are provided through various acts and schemes, including the Employees' State Insurance Act, 1948 (ESI Act), the Employees' Provident Fund & Miscellaneous Provisions Act, 1952 (EPF Act), the Maternity Benefit Act, 1961, the Payment of Gratuity Act, 1972, and the Employees' Compensation Act, 1923. These laws aim to ensure employees receive benefits such as sickness, maternity leave, disability, medical, and death benefits, depending on the specific legislation. They cover employees in different types of establishments and industries, with contributions required from both employers and employees.
   

​What are the primary features of the Employees’ Provident Fund Act in India concerning social security benefits?​

The Employees' Provident Funds and Miscellaneous Provisions Act of 1952 is one of social security laws in India providing benefits to employees/industrial workers. The Employees’ Provident Funds and Miscellaneous Provisions act mainly provides retirement or old age benefits, such as :- 1) Provident Fund, 2) Superannuation Pension, Individual Pension, Family pension and 3) Deposit linked insurance. The primary aim of the Employees’ Provident Funds and Miscellaneous Provision Act, 1952 is to extend comprehensive terminal benefits to employees/industrial workers. These benefits encompass scenarios like retrenchment, closure, retirement upon reaching the age of superannuation, voluntary retirement, resignation, and retirement due to incapacity to work.
   

​What establishments does the EPF Act apply to?​

The EPF Act is mandatorily applicable to all establishments having 20 or more employees. The EPF Act continues to apply even if the threshold falls below 20 employees. Further, any establishment employing less than 20 persons can also be voluntarily covered under section 1(4) of the EPF Act. 
   
The term “employee” for the purpose of applicability under the EPF Act is not restricted to those employees who are on the payroll of the establishment. Section 2(f) of the EPF Act gives a wide definition of “employee” to provide any person who is employed for wages in any kind of work, manual or otherwise, in or in connection with the work of an establishment, and who gets his wages directly or indirectly from the employer, and includes any person employed by or through a contractor in or in connection with the work of the establishment. In other words, permanent, temporary, full time, part time, casual, time – rated, piece – rated employees, contract employees working for the establishment will also be counted for the purpose of mandatory coverage under the EPF Act. 
   

​What are the statutory schemes covered under the EPF Act and eligible employees covered?

There are three schemes under the EPF Act as provided below:
  

Employees’ Provident Fund Scheme, 1952 (EPF Scheme) 

EPF Scheme is set up under the EPF Act for the purpose of providing a post-retirement benefit for the employees or a class of employees or their legal heirs in case of death, employed under the establishment. The following employees are covered under the EPF Scheme:​
  • ​​​​Any person employed for work within an establishment or engaged through a contractor for work related to an establishment, is mandatorily required to be covered under the EPF Scheme if their salary is less than INR 15,000 per month. Furthermore, employees who have been members of the EPF Scheme are required to continue even though their monthly wage exceeds INR 15,000. Further, those earning above INR 15,000 per month may also be covered since 1 September 2014 on a voluntarily basis.
  • Individuals classified as disabled employees under the new para 82 of the EPF Scheme, appointed on or after 1 April 2008 and working in the private sector with monthly wages up to INR 25,000 are covered.
  • Any person classified as an International Worker under the new para 83 of EPF Scheme, is also covered.​​

​Employees’ Pension Scheme, 1995​

Employees’ Pension Scheme (EPS)is framed under the EPF Act for the purpose of providing the superannuation pension, retiring pension or permanent total disablement pension to the employees and also to provide widow or widower’s pension, children pension or pension payable to the beneficiaries of such employees. Under this scheme, out of the employers’ contribution of 12 per cent, 8.33 per cent is allocated to Employees’ Pension scheme and balance of 3.67 per cent is allocated to Employees’ Provident Fund Scheme. The government amended rules related to EPF and Employees’ Pension Scheme via notification in August 2014, which became effective from 1 September 2014, any new joinees/ individuals who joined Employees’ Provident Fund on or after 1 September 2014, if at the time of joining their monthly wage (Basic+ Dearness Allowance) exceeded INR 15,000 per month, they would be ineligible to be a part of EPS, and in such case 8.33 per cent of employer’s share is not to be diverted to the pension scheme and total employer’s share goes to EPF Scheme.
  

​Employees’ Deposit-linked Insurance Scheme, 1976 ​

Employees’ Deposit-linked Insurance Scheme (EDLI) under the EPF Act is for the purpose of providing insurance benefits to the employees of an establishment or a class of establishments to whom this EPF Act applies in case of death while in service. For this scheme no amount is taken from employee's salary. However, the employer has to make a payment of 0.5 per cent of the total pay on which contributions are payable of a maximum of INR 15,000 every month.
  

​Who are Excluded Employees under the EPF Act?

  • ​Employees who have withdrawn the full amount of their contribution in the Fund either upon retirement from service after reaching the age of 55 years or upon migration from India for permanent settlement abroad or for taking employment abroad.
  • Employees whose pay exceeds INR 15,000 per month provided he is not a member of PF before (effective from 1 September 2014).
  • Individuals who, as per the Certified Standing Orders, are classified as apprentices, or who are declared to be apprentices by the authority specified by the appropriate Government.
   

​What are the statutory contributions under the EPF Act? ​

Under the EPF Act, the EPFO has constituted and maintains a fund known as the Employees’ Provident Fund (EPF). Both employer and employees have to make monthly contributions towards the EPF. The rate of monthly contribution payable by both employer and employee currently is 12 per cent each on employee’s basic salary and dearness allowance. Further under the EPF Act currently there is a maximum wage ceiling of INR 15,000 per month except for those employees who qualify as “International Workers” under new para 83 of the Employees Provident Fund Scheme, 1952.
   
Further, the rate of contribution payable by the employer is 10 per cent on the monthly wages and an equivalent contribution of 10 per cent is payable by the employee, in case of certain establishments including establishments having less than 20 employees.
   

Can an employer withdraw the applicability of the EPF Act when the contributions made under the EPF Act were on voluntary basis?

No, once an employer (who is not mandatorily required to be covered) under the EPF Act opts for voluntary coverage, such employer cannot thereafter ask for withdrawal of coverage even when the number of employees is reduced below 20.
   

​Which are the components of wages considered for the EPF statutory contribution purpose?​

The EPF Act defines the “basic wage” under Section 2(b)(ii) as all emoluments paid in cash to an employee in accordance with the terms of his contract of employment. The definition of “basic wage” explicitly excludes cash value of food concessions, dearness allowance, house-rent allowance, overtime allowance, bonus, commission, presents made by the employer. However, section 6 of EPF Act categorically provides that the EPF contribution shall be payable on monthly basis upon basic wages, dearness allowance and retaining allowance (if any) payable to each of the employee. In other words, the EPF contribution is primary invited on “basic wages” and “dearness allowance”. 
   
Further, the Honorable Supreme Court in Regional Provident Fund Commissioner (II), West Bengal vs. Vivekananda Vidyamandir & Others. [2019 LLR 339], had primarily reiterated that all those allowances whether titled as “special allowance” or any other allowances of like nature which are universally, necessarily and ordinarily paid to all employees across the board, are to be considered as a part of “basic wages” for the purpose of provident fund contribution. Hon’ble Supreme Court further clarified that certain allowances are excluded by law for the EPF contribution purpose which are variable or linked to any incentive for production of greater output by an employee. For instance overtime allowance, bonus, commission, or other similar allowance which are not necessarily to be found to be paid in all the estab¬lish¬ments nor are they necessarily earned by all the employees hence, shall specifically stand ex¬cluded from the EPF contributions. However, the said ruling does not impact the domestic workers contributing provident fund on amounts exceeding INR 15,000 per month which is the current maximum wage ceiling. However, the Hon’ble Supreme Court ruling impacts companies employing foreign nationals qualifying to be “International Workers” as the maximum wage ceiling does not apply. Hence the risk of higher contribution is seen to be considerable in respect of employe¬es qualifying as the “International Workers”. 
   

​What are the special provisions under the EPF Act pertaining to International Worker (IW) in terms of global mobility?​

Until October 2008, foreign nationals working in India were not covered under the Provident Fund regulations if their pay exceeded the wage ceiling. Conversely, Indian nationals working abroad were required to contribute to the social security schemes of the respective countries, often losing contributions due to limited overseas tenure or failure to meet minimum contribution or residence requirements. In order to create a level playing field, the Ministry of Labour, Government of India, introduced significant changes in the Employees Provident Fund Scheme, 1952, and the Employees Pension Scheme, 1995, in October 2008. These changes introduced a new category of workers known as International Workers. As a result, every eligible IW working in an establishment in India required to contribute to provident fund schemes became obligated to enroll in these schemes, effective from 1 November 2008.
   
International Worker means:
  • ​Any Indian employee having worked or going to work in a foreign country with which India has entered into a social security agreement and being eligible to avail the benefits under social security programme of that country, by virtue of the eligibility gained or going to gain under the said agreement
  • An employee other than an Indian employee, holding other than an Indian Passport, working for an establishment in India to which the EPF Act, applies.
   

​Who can be excluded from International Worker under the EPF Act?​

An international worker who is contributing to the social security program of their home country and is officially recognized as such through a Detachment Certificate for a specific period, as outlined in the bilateral Social Security Agreement between that country and India, is considered an 'excluded employee' according to these regulations. India is having a bilateral comprehensive economic agreement with Singapore wherein specifically exempts natural persons of either country to contribute to the social security fund of the host country (e.g. para 4 of Article 9.3 of CECA between India and Singapore provides that “Natural persons of either Party who are granted temporary entry into the territory of the other Party shall not be required to make contributions to social security funds in the host country)
   

​What is a Social Security Agreement (“SSA”)?​

SSA is a mutual agreement aimed at safeguarding the social security rights of workers assigned to another country. As a bilateral arrangement, it typically ensures equal treatment and prevents duplicate coverage.
  

Scenario 1: Worker Moving to a SSA Country to perform temporary work for his/her Indian Employer

​Worker contributing to a contributory pension scheme in India can avail a Certificate of Coverage (COC) to be exempt from paying social security contribution in the SSA Country.
  

Scenario 2: Worker Moving to a Non-SSA Country to perform temporary work for his/her Indian Employer

Worker may have to contribute towards Social Security in both India as well as the country he or she is moving to for the temporary work. 
  

​Which countries have entered into a SSA with India?​

Countries like Belgium, Germany, Switzerland, the Grand Duchy of Luxembourg, France, Denmark, Republic of Korea, Netherlands, Hungary, Finland, Sweden, Czech Republic, Norway, Austria, Canda, Australia, Japan, Portugal. Recently, India signed Social Security Treaty with Brazil with effect from 1 January 2024.  
   

​Can an international worker benefit from reciprocity if their home country exempts Indian nationals from social security under domestic law, despite the lack of a Social Security Agreement with India?

International workers cannot profit from reciprocity without a formal agreement in place. All International Workers must be enrolled, with the exception of those with a valid detachment certificate under an SSA.
   

​What is the monthly pay considered for contribution under the EPF Act for International workers? How will the recent Karnataka High Court judgment regarding International Workers affect this? 

The contribution shall be calculated on the basis of monthly pay containing the following components actually drawn during the whole month whether paid on daily, weekly, fortnightly or monthly basis:
  • ​Basic wages – all emoluments paid or payable in cash while on duty or on leave / holiday except Dearness allowance, House rent allowance, Overtime allowance, Bonus, Commission or any other similar allowance payable in respect of employment and any presents made by the employer
  • Dearness allowance – all cash payments by whatever name called paid to an employee on account of a rise in the cost of living
  • Retaining allowance
  • Cash value of any food concession
   
Furthermore, it has to be noted that the contribution is payable on the total salary pay-able on account of the employment of the employee employed for wages by establishment covered in India even for responsibility outside India also. Additionally, there is no cap on the salary up to which the contribution has to be made by both the employer as well as an employee. The maximum wage ceiling of INR 15,000 per month does not apply in the case of International Workers. 
  
The international workers are mandatory to contribute 12 percent of their salaries (not subject to any cap) to the Indian Provident Fund scheme. The exemption from making contributions for employees earning salary in excess of INR 15,000per month does not apply to international workers. Additionally, the employers are also compulsorily to pay an equal amount, i.e., 12 percent of salary as their contribution to the scheme.
  
In the recent case (heard with several other petitions) of Karnataka High Court titled Stonehill Education Foundation v. The Union of India (WP No. 18486/2012), delivered on 25 April 2024, the Karnataka High Court ruled that Para 83 of the Employees’ Provident Fund Scheme 1952( “Provident Fund Scheme”) and Para 43-A of the Employees’ Pension Scheme, 1995 (“Pension Scheme”) and struck down these special provisions for ‘International workers’.
  
The Hon’ble High court found these provisions, introduced in 2008, to be discriminatory as they mandated international workers to contribute to the Provident Fund irrespective of their salary, while domestic workers earning above INR 15,000 per month were excluded. 
  
The Hon’ble High court ruled that the distinction between international and domestic workers violated Article 14 of the Constitution, which guarantees equality before the law.
  
However, it is important to note that this judgement was passed by a single-judge bench of the Karnataka High Court. Such rulings are often challenged before larger benches of the High Court or the Supreme Court. The EPFO is reportedly contemplating an appeal against the ruling until the matter is finally decided, employers may continue to deposit EPF contributions for international workers to ensure compliance, unless specific guidance is provided by the EPFO.
  

​Conclusion

The recent Karnataka High Court ruling has significantly impacted the social security landscape for international workers in India. 
  
Moving forward, both employers and international workers must remain informed about legal developments and potential legislative changes. Employers should stay updated on social security regulations, while international workers are advised to seek professional advice to understand the implications of the ruling in respect to their specific situations. As India’s social security system adapts to the evolving global economy, further legal refinements and clarifications can be expected to ensure a fair and equitable system for all workers.
  
**Disclaimer:**
The content provided in this article is for general informational purposes only and does not constitute professional advice. It is essential to seek specific advice from qualified professionals regarding your individual situation or needs. Any reliance on the information provided here is at your own risk.​

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