Skipping out

A Supreme Court judgment on provident funds provides a poignant reminder to employers to ensure they are complying with the law. By Amit Wadhwa and Puneet Gupta

To provide a social safety net to retired workers and to meet the obligations of ensuring social justice to all, as enshrined in India’s constitution, India has a mandatory Employees Provident Fund, into which both employers and employees are required to make contributions.

The scheme dates back to 1952 and the passing of the Employees Provident Fund and Miscellaneous Act (PF act), which had the objective of making provisions for the future, funded by contributions from both the employers and employees, as well as cultivating a spirit of saving among employees.

Provident funds (PF) have provided much-needed financial support to employees. However, the components of salary/remuneration and other allowances on which contributions are made has proved to be a bone of contention. A recent Supreme Court judgment – The Regional Provident Fund Commissioner (II) West Bengal v Vivekananda Vidyamandir and Ors (RPFC judgment) – which reiterates and follows the principles laid down in earlier judgments and does not lay down any fresh law, has nonetheless served to bring the issue into focus.

Legislative framework

While the Employees Provident Fund and Miscellaneous Act laid down the framework for PF, the details were delegated to the executive, which introduced the Employees’ Provident Fund Scheme, 1952. The scheme sets out details of the PF, its members, the ways of withdrawal of benefits by members, etc. Once an employee becomes a member of the PF, they continue to be its member, except as mentioned in the scheme.

Contributions from employees are compulsorily extracted with no option available to the employees to decide whether to join the fund or not, except for “excluded employees”. Thus, a stipulated percentage of an employee’s monthly wage is deducted and credited to the PF. The employer is required to contribute an equal amount to the fund and the employer’s contribution cannot be recovered from the employee.