HC strikes down foreign workers’ inclusion in PF; EPFO to evaluate course of action

Retirement fund body EPFO on Tuesday said it is evaluating the course of action with regard to the judgment of the Karnataka High Court holding the inclusion of foreign workers in the provident fund ‘unconstitutional’.

The Karnataka HC, in a recent judgment, struck down provisions which included foreign workers in the ambit of employee’s provident fund (EPF) and pension scheme, terming them “unconstitutional and arbitrary”. The ruling comes 15 years after foreign workers were included under EPF and pension schemes.

“While holding the highest regard for the court’s decision, the EPFO (Employees’ Provident Fund Organisation) is actively evaluating the course of action in response to this judgement,” the EPFO said.
 

Experts said the ruling is likely to be challenged before the Supreme Court by the government and the EPFO. “In the meantime, employers are required to take a position on ongoing compliances for foreign nationals,” said Preeti Sharma, partner at BDO India.

However, EY India’s tax partner Puneet Gupta said: “Until the matter achieves finality, subject to clarity from the Employees’ Provident Fund Organisation, employer organisations may have to continue Provident Fund compliance for International Workers.”

On April 25, 2024, the Karnataka HC held that non-citizen employees working in India and employees who are citizens of India are ‘equals’ when working in India. Any regulation that treats equals differently violates Article 14 of the Constitution, which prescribes ‘equality before law’, it said. The HC also took a view that international worker provisions are not aligned to objects of the Provident Fund Act – which is to ensure that employees with lower salary brackets get retirement benefits.

A note by EY said the petitioner’s grievance before the HC was that international workers are covered under the Provident Fund Scheme irrespective of salary drawn whereas domestic workers who draw monthly pay exceeding the prescribed statutory ceiling (Rs 15,000 per month) are outside the purview of the Provident Fund Scheme. The petitioners further argued that international workers work in India only for a limited period and requiring them to pay contributions on their entire global salary would cause irreparable injury.

The PF law provides a wage ceiling of Rs 15,000 to make mandatory contribution to PF for Indian nationals. Any contribution over and above this wage ceiling is optional. However, this ceiling is not applicable to foreign nationals working in India who are ineligible to receive benefits under a social security agreement (SSA) signed between India and their home country.

Such foreign nationals are required to make PF contributions on their full “PF wages” received in India as well as in their home country for working in India. Over and above, the foreign nationals from non – SSA countries are not allowed to withdraw the balance in PF account until they reach the age of retirement, that is 58 years, explained BDO India’s Sharma. “This ruling will have a far-reaching impact on all ongoing litigation matters on contribution and damages imposed for international workers,” she said.

Source:- Financial Express