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Wednesday, 3 September 2014

Understanding of PF, Pension and EDLI with new amendments of Rs.15000/-

Your attention is drawn to the Gazette notification dated 22/8/2014 enhancing wage ceiling from 6500/- to 15000/- per month from 1/9/2014.
There are 3 parts to the said notification as follows :
1) Employees earning (Basic wages + DA/Special Allowance + retaining allowance + cash value of any food concession) upto 15000/- pm will be required to be COMPULSORILY covered under PF.
1.a) All existing employees who are excluded and who have filled in Form 11 and are currently not covered by PF by crossing the limit of 6500/- will henceforth effective 1/9/2014 be required to be covered for PF upto 15000/- monthly salary drawn. Wherever establishments have covered employees above 15000/- limit, can continue to do so. Current and new examples shown below :
Current wages
Pensionable wages
Employees contribution at 12%
Account No.1 – employer’s contribution
Account No.10 – Employer’s pension
Scenario 1 old
Scenario 2 old
Scenario 3 old
Scenario 4 new
Scenario 4 new
Scenario 5 new
Scenario 6 new
Scenario 7 new
As per notification, Department has enhanced wage ceiling to 15000/- and any new employee coming with salary of more than 15,000/- and is not a previous member of PF Fund and if the establishment does not have a PF scheme if the strength is below 20, he will not be a member. However, if a new employee is a member of the PF Scheme earlier and even if his salary crosses 15000/- he continues to be a member in the company’s PF driven Scheme because of the benefit given by the company to its employees. However, if he is a new employee and if the company has a PF scheme and is salary is more than 15000, EPS will not be applicable to him.
Scenario 8 new
1250 (pension 8.33% on 15000
Scenario 8 new employee joining
No pension
No pension but PF & EDLI
Scenario 9 new for employer
2400 for PF on 20,000 and 1666 on pension on 20,000 and 58 addl 1.16% on 5000
PF at734+ Admin. Charges at 1.10% ( 220.00 )
EDLI charges at 0.50% ( 75.00 ) EDLI admin at 0.01% ( 2.00 )

(Employer) 8.33% on 20000 = 1666 + (Employee) 1.16% on 5000 = 58 (1724) opted for pension

1.b) The employees whose pay at the time of joining the establishment in case is over and above 15000/- pm are only required to join the Employees Provident Fund, 1952 and EDLI Scheme, 1976 and shall not be eligible for joining the Employees Pension Scheme, 1995 subject to point 2.(a) below.

2) Employees Pension Scheme 1995 also undergoes a change for those whose pay as on 1/9/2014 is less than or equal to 15000/- This is so because Govt. has decided to fix a minimum pension of 1000/- per month in all cases of monthly widow pension. Monthly children pension for each child shall be equal to 25% of amount admissible to widow of not less than 250/- pm and if not survived by widow and there are only children, then 75% of amount admissible to widow of not less than 750/- pm. For purpose of calculation, all cases of exit/death on or after 1/9/2014, it will take into account average monthly drawn pay of last 60 months on prorata basis before leaving the Organization upto a maximum pensionable salary of 15000/- pm if the member was not in receipt of full pay in the last 60months. Accordingly, the pensionable salary shall be calculated on prorate basis by taking 12 months average separately for the period upto 31/8/2014 upto the wage ceiling of 6500 pm.

2.a) Existing Employees Pension Scheme Member as on 1/9/2014 who had been contributing on salary exceeding 6500/- will be required to exercise a fresh option jointly between employer and employee whether or not, to continue contributing on salary exceeding 15000/-pm provided if there is willingness on both sides, then employee will be required to contribute an additional 1.16% on salary exceeding 15000/- from and out of contributions payable by the employee per month, over and above 1.10% which is already paid by employer as administrative charges. Please note that this additional contribution has no relation to administrative charges. This option is valid for 6 months and extendable by another 6 months if sufficient cause for delay is accepted by RPFC after which pensionable contribution made if any will be diverted to PF account with interest. This means that an employee is not interested in joining the EPS Scheme except for PF & EDLI. In case no option is exercised, it shall be deemed that member has not opted for contribution over the wage ceiling and the contribution made to the pension fund over and above the wage ceiling of 15000/- shall be diverted to PF Account of the member along with interest declared under EPS-95. Please see scenario 8.
In any case, the provisions for contributing on higher salary has been deleted and as such, no new options can be allowed to any member of EPS 1995 on and after 1/9/2014.
An EPS will henceforth apply only to EPF members whose pay at the time of becoming PF member is not more than 15000/- pm. On or after 1/9/2014 the entire employer and employee contribution shall remain in PF for all new PF members on or after 1/9/2014 having salary of more than 15000/- at the time of joining.
2.b) If an employee does not qualify for pension as per laid down rule of 10 year service or completion of 58 years of age whichever is earlier, he can withdraw the benefit as per table “D” or opt for scheme certificate if member is not 58.
3) EDLI Scheme benefit has been increased by 20% in addition to existing benefits. Maximum sum assured was 3.00 lakhs earlier and now enhanced the maximum sum assured to 3.60 lakhs including 20% adhoc benefit. That is, if an EPFO subscriber dies, his family will be entitled to a maximum of 3.60 lakhs.

Reproducing complete paras as per the Act where changes have been made :
The Employees’s Provident Fund Scheme, 1952 :
In para 2, clause (f) sub clause (ii)
Excluded employee means
An employee whose pay at the time he is otherwise entitled to become a member of the Fund, exceeds “fifteen thousand rupees” per month.

In para 26, in sub-paragraph (6)
Notwithstanding anything contained in this paragraph, (an officer not below the rank of an Assistant Provident Fund Commissioner) may, on joint request in writing, of any employee of a factory or other establishment to which this Scheme applies and his employer, enroll such employee as a member or allow him to contribute on more than (rupees fifteen thousand rupees” of his pay per month if he is already a member of the Fund and thereupon such employee shall be entitled to the benefits and shall be subject to the conditions of the Fund, provided that the employer gives an undertaking in writing that he shall pay the administrative charges payable and shall comply with all statutory provisions in respect of such employee.
In para 26A, in sub-paragraph (2)
Retention of membership.
(2) Every member employed as an employee other than an excluded employee in a factory or other establishment on which this Scheme applies, shall contribute to the Fund, and the contribution shall also be payable to the Fund in respect of him by the employer. Such contribution shall be in accordance with the rate specified in paragraph 29.

Provided that subject to the provisions contained in sub-paragraph (6) of Paragraph 26 and (in Paragraph 27) or sub-paragraph (1) of Paragraph 27-A, where the monthly pay of such a member
exceeds “fifteen thousand rupees” the contribution payable by him, and in respect of him by the employer, shall be limited to the amounts payable on a monthly pay of fifteen thousand rupees including dearness allowance, retaining allowance if any and cash value of food concession.

The Employees’s Pension Scheme, 1995 :
In para 3, in sub-paragraph (2)
(2) The Central Government shall also contribute at the rate of 1.16 percent of the pay of the members of the Employees’ Pension Scheme and credit the contribution to the Employees Pension Fund:
Provided that where the pay of the member exceeds fifteen thousand rupees per month the contribution payable by the employer and the Central Government be limited to the amount payable on his pay of fifteen thousand rupees.
In the principal scheme, in paragraph 11
Determination of Pensionable Salary.
(1) The pensionable salary shall be the average monthly pay drawn in any manner including on piece rate basis during contributory period of service in the span of sixty months preceding the date of exit from the membership of the pension fund and the pensionable salary shall be determined on pro-rata basis for the pensionable service upto the 1st day of September 2014 subject to a maximum of 6500 per month and for the period thereafter at the maximum of 15000 per month.
Provided that if a member was not in receipt of full pay during the period of 60 months proceeding the day he ceased to be the member of the pension fund, the average of previous 60 months full pay drawn by him during the period for which contribution to the pension fund was recovered, shall be taken into account as pensionable salary for calculating pension.
2) If during the said span of 60 months there are non contributory periods of service including cases where the member has drawn salary for a part of the month, the total wages during the 60 months span shall be divided by the actual number of days for which salary has been drawn and the amount so derived shall be multiplied by 30 to work out the average monthly pay.
3) The maximum pensionable salary shall be limited to fifteen thousand rupees per month.
4) The existing members as on the 1st day of September 2014 who at the option of the employer and employee, had been contributing on salary exceeding 6500 per month, may on a fresh option to be exercised jointly by the employer and employee continue to contribute on salary exceeding 15000 per month.
Provided that the aforesaid members have to contribute @ 1.16% on salary exceeding 15000 as an additional contribution from and out of the contributions payable by the employees for each month under the provisions of the Act or the rules made thereunder.

Provided further that the fresh option shall be exercised by the member within a period of 6 months from the 1st day of September 2014.
Provided also that the period specified in the second proviso may, on sufficient cause being shown by the member, be extended by RPFC for a further period not exceeding 6 months.
Provided also that if no option is exercised by the member within such period (including the extended period) it shall be deemed that the member has not opted for contribution over wage ceiling and the contribution to the pension fund made over the wage ceiling in respect of the member shall be diverted to the provident fund account of the member along with interest as declared under the Employees Provident Fund Scheme from time to time.
In the principal scheme, in paragraph 12, in sub-paragraph (2)
Monthly Member’s Pension
(1) A member shall be entitled to :

(a) superannuation pension, if he has rendered eligible service of 10 years or more and retires on attaining the age of 58 years.
(b) Early pension, if he has rendered eligible service of 10 years or more and retires or otherwise ceases to be in the employment before attaining the age of 58 years.
(2) In the case of a new entrant, the amount of monthly superannuation pension or early pension as the case may be, shall be computed in accordance with the following factors, namely:
Monthly Member’s Pension = Pension salary x Pensionable Service 70
In the principal scheme, in paragraph 12, in sub-paragraph (2)
Provided that the members monthly pension shall be determined on a pro-rata basis for the pensionable service upto the 1st day of September 2014 at the maximum pensionable salary of 6500 and 15000 per month and for the period thereafter at the maximum pensionable salary of 15000 per month. 

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