International workers: EPFO gets tough on employers
The Financial Express
Senior Tax Professional
Ernst & Young
Foreign assignments often become challenging because they involve not only entering into a new environment socially or culturally, but also dealing with a new tax and social security system.
Indian employees used to contribute huge sums towards social security in overseas countries where they were employed while these benefits were not available to them on their return.
Therefore, to create a level playing field for such employees, in late 2008, India introduced a new class of employees, namely International Workers (IWs), who are required to mandatorily contribute to the Indian Social Security system unless such IWs are exempt by virtue of social security agreement (SSA). The Employees’ Provident Fund Organization (EPFO) has been trying to introduce stringent regulations for IWs to exert pressure on other countries to enter into SSAs with India and it has, to an extent, yielding good results.
In the latest of such clarifications, the one issued by the EPFO on May 23, 2013, can be considered as a wake-up call to the Regional Provident Fund offices with regard to IWs. The message sought to be communicated by the latest circular to its regional offices is twofold — emphasizing on the key provisions pertaining to IWs and ensuring compliance and related penal consequences.
The EPFO has reiterated that the social security contributions have to be remitted by the employer on full pay without the ceiling of R6,500. Further, the contribution to the pension fund will be 8.33% of the full pay from the employer’s share. However, there are several issues on the definition of pay, which was formulated keeping in perspective the local compensation structures and remained unchanged for IWs, thereby not providing any insights on dealing with complication of international pay packages.
Compliance and related penal consequences
To track IWs, the EPFO has suggested to its regional offices to obtain data from the Foreigner’s Regional Registration Offices (FRRO) to cross-check with their records. Such cross-checking could have far-reaching implications with the FRRO being the primary authority that keeps the records of all the foreign nationals working in a particular location.
Further, the EPFO has made it very clear that any violation of the law by the employer in respect of IWs will lead to severe penal consequences, which include damages (ranging from 2 to 25% per annum) and penal interest (@ 12% per annum). In the worst-case scenario, the employers could also land up with jail, term ranging from six months to three years.
Therefore, the objective of the EPFO to issue the circular is not only to clarify the provisions relating to IWs but also to give a strong message to its regional offices to be more vigilant and streamline the enforcement machinery to ensure full compliance in respect of IWs. The mantra of EPFO seems to be simple — either fall in line or face the heat.
Views expressed are personal