By Avik Biswas, Partner and Ronak Chawla, Associate
The employer’s voluntary contribution under the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (the “EPF Act”) over and above the statutory wage ceiling has always been a contentious issue. To that specific end, the circumstances under which an employer can reduce its contribution to the statutory limit have now received further clarity from our courts.
Provisions under The Employees’ Provident Fund Scheme, 1952 (the “Scheme”)
Paragraph 26A.(2) of the Scheme sets out that every member employed as an employee in a factory or other establishment to which this Scheme applies, is required to contribute to the provident fund established under the Scheme (the “Fund”) and the contribution shall be payable to the Fund in respect of such employee by the employer. Such contribution shall be in accordance with the rate specified in Paragraph 29. In this specific context, Paragraph 29 further states that the contribution payable by the employee under the Scheme, shall be equal to the contribution payable by the employer in respect of such employee and the contribution payable by him may, if he so desires, be an amount exceeding ten per cent or twelve per cent, as the case may be, of his basic wages, dearness allowance and retaining allowance (if any) subject to the condition that the employer shall not be under an obligation to pay any contribution over and above its contribution payable under the EPF Act.
At the very outset, it is important to note that the Ministry of Labour and Employment of the Government of India has raised the statutory wage ceiling from Rupees Six Thousand Five Hundred Only (INR 6,500/-) to Rupees Fifteen Thousand Only (INR 15,000/-) vide notification dated August 22, 2014.
While it is fairly obvious that where the monthly pay of an employee, who is a member of the Scheme, exceeds Rupees Fifteen Thousand Only (INR 15,000/-) the contribution payable by the employer will be limited to the amount payable on a monthly pay of Rupees Fifteen Thousand Only (INR 15,000/-), an employer may however, without any legal obligation, contribute over and above the statutory limit of its contribution payable under the EPF Act. Given that, an important allied aspect is the employer’s liability towards its contribution under the EPF Act with respect to the terms of employment of the employees who are members under the Scheme, especially when the employer was contributing over and above the statutory limit for a period of time.
The Supreme Court case of Marathwada Gramin Bank Karamchari Sanghatana and Another v/s Management of Marathwada Gramin Bank and Ors. (the “Gramin Bank Case”) provides us with an understanding of the extent of the employer’s liability in these circumstances.
Brief facts of the Gramin Bank Case
The Gramin Bank (employer) had obtained permission from the Regional Provident Fund Commissioner to be exempted from complying with the provisions of the Scheme since it had formulated its own scheme to pay provident fund to its employees. Subsequently the said exemption was withdrawn and the Bank was asked to make contributions in accordance with the Scheme. However, the Bank continued to make payments in excess of its statutory liability under the Scheme and the EPF Act. Owing to huge accumulated losses, the Bank issued a notice of change under Section 9A of the Industrial Disputes Act, 1947 expressing its intention to discontinue payment of provident fund in excess of its statutory liability. On reference made by the Central Government to the Central Government Industrial Tribunal (the “Tribunal”), the Tribunal with reference to Section 12 of the EPF Act held that the management cannot reduce, directly or indirectly, the wages of any employee to whom the Scheme applies or the total quantum of benefits in the nature of old age pension gratuity (provident fund) or life insurance to which the employee is entitled under the terms of his employment, express or implied. The Tribunal ruled in favour of the employees and directed that the employees shall continue to draw equal amount of contribution from the employer towards provident fund without any ceiling on their wages.
Contrary view of the Bombay High Court and Supreme Court
The Bombay High Court, after studying Section 12 of the EPF Act, was of the view that the employer would not be permitted from reducing its provident fund contribution, only in the event that doing so would result in the same being contrary to the terms of employment of the employees. In the present case, the terms of employment of the Bank’s employees expressly provided that the provident fund contributions would be in accordance with the EPF Act. There was no provision in the terms of employment which required the employer to make contributions beyond its statutory obligations.
The Supreme Court, on appeal, shared the same view as the Bombay High Court that the Bank was under an obligation to pay provident fund to its employees in accordance with the provisions of statutory Scheme. Further, the Bank could not be compelled to pay the amount in excess of its statutory liability just because the bank had formed its own trust and started paying provident fund in excess of its statutory liability for some time. The employees were entitled to provident fund according to statutory liability of the Bank. The Bank never discontinued its contribution towards provident fund according to the provisions of the statutory Scheme.
The decision of the Gramin Bank Case was also followed in 2014 in the case of Nava Nalanda High School and Another v/s Employees Provident Fund Organisation and Another.
The statutory liability of an employer towards its contribution under the EPF Act and the Scheme will be limited to the amount payable with respect to the statutory wage ceiling [currently Rupees Fifteen Thousand Only (INR 15,000/-)] in cases where the respective employee’s monthly pay exceeds Rupees Fifteen Thousand Only (INR 15,000/-). However, if the employer wishes to contribute over and above the statutory limit it may do so at its own sole discretion. The employer is also at liberty to reduce the contribution to the statutory limits at any point of time as long as the said reduction is not specifically contrary to the terms of employment of the employees.