Provident Funds - A Brief Primer

As the name suggests, provident funds are meant to provide money to a person, employed in various industries, at a future time, including post-retirement.

Both the employer and the employee pay 12% of the Basic Salary + Dearness Allowance + Food Coupons + Retention Allowance towards the provident fund on a monthly basis. The employee's share is deducted from his/her salary. The employer's share is not deducted from the employee's salary and is paid separately. Employer's also pay administrative charges for maintaining provident funds for all their employees. Layoff compensation is not considered for calculating PF share.

These funds are governed by the Employee's Provident Funds & Miscellaneous Provisions Act, 1952. 187 different categories of industrial and commercial establishments, where more than 19 employees are employed, come under the purview of this act.

The rate of contribution for certain category of establishments is 10%. These are :-

• Any establishment in which less than 20 employees are employed.
• Any sick industrial company and which has been declared as such by the Board for Industrial and Financial Reconstruction.
• Any establishment which has at the end of any financial year has accumulated losses equal to or exceeding its entire net worth.
• Any establishment in following industries :- Jute, Beedi, Brick, Coir and Guar gum Factories.

An important recent change in the law has come into effect from 1 September, 2014. It says that if an employee does not receive a basic salary of Rs. 15,000 or more, there will not be any contribution towards the PF, either by the employee or the employer. This means that the minimum statutory limit for PF contributions is 12% of Rs. 15,000 = Rs. 1800. The employer can calculate and contribute PF share on higher basic salary if it intends but there is no legal obligation on the employer to do so.

The Act and Schemes framed there under are administered by a tri-partite Board known as the Central Board of Trustees, Employees' Provident Fund, consisting of representatives of :-

Government (Both Central and State),

Employers, and

Employees

The Board administers a contributory provident fund, pension scheme and an insurance scheme for the workforce engaged in the organized sector in India. It is one of the world’s largest organizations in terms of clientele and the volume of financial transactions undertaken by it. The Board is assisted by the Employees’ PF Organization (EPFO), consisting of offices at 120 locations across the country. The EPFO is under the administrative control of Ministry of Labour and Employment, Government of India (click here). The Organization also has a well equipped training set up where officers and employees of the Organization as well as Representatives of the Employers and Employees attend sessions for trainings and seminars.

The contributions are invested as per the prescribed Pattern of Investment. The Members’ Provident Fund Balances earn interest as per the rate of interest declared annually by the Government of India.

Partial withdrawal of money from PF is permitted for miscellaneous reasons such as education, marriage, illness etc.

Different organizations maintain different PF accounts for the employees. This means that if a person had been employed with N number of different employers, he would have had N different accounts. All these accounts can be viewed and maintained through a single window provided by Universal Account Number (UAN). It is proclaimed as a single window for all services provided by EPFO to its members. This number and a member ID are supplied by the employer's to the employee's which can be then used to access this single window @ EPFO UAN Member Portal. One can view all the current and previous PF accounts, their current balance, download their passbooks etc.

A recent useful addition was the introduction of Online Transfer Claim Portals. Employers and employees have a separate portal. Both can use the respective portals to request for transfer of funds from one account to another. Employer's portal is at PF Online Transfer Claim Portal for Employers. The one for the employee's is at PF Online Transfer Claim Portal for Employees.