Foreign Workers Come Under EPFO Radar

Foreign nationals visiting India for employment are now in the radar of the Employees' Provident Fund Organisation (EPFO), which wants to ensure that Indian PF obligations are duly met. In an innocuous internal memo dated April 1, the EPFO has directed its regional offices to coordinate with the Foreigner Regional Registration Offices (FRRO) located in their area and obtain a complete list of all such foreign nationals.

Currently, all foreign nationals visiting India on business or employment on visas valid for more than 180 days are required to get registered with the FRRO within 14 days of their arrival. Under the PF Act, factories and establishments having 20 or more employees are required to be registered for PF purposes. 

Section 6 of the PF Act requires the employer to make contributions to the provident fund accounts of each of its employees. An employee under the PF Act is defined to include persons employed "through a contractor in or in connection with the work of the establishment".

Sonu Iyer, leader human capital services at EY, explains, "In this context, the ramifications of the recent EPFO memo are wide. For instance, if an Indian company has hired an overseas entity for providing it expert technical advice or an overseas entity has sent its employees on short-term business trips to Indian affiliate. Even as employees deputed by overseas company are not employees of the Indian company, the latter could be a 'principal employer' and responsible for their PF obligations."

Thus, in cases of non-compliance, notices would be served by the EPFO on the Indian company. However, section 8A of the PF Act permits the principal employer to recover the amount contributed towards PF from the contractor (which, in this illustration, would be the overseas company).

The only exception to the above norm would be if the deputed employee has obtained a certificate of coverage under a social security agreement entered into by India. In such cases, the foreign national would continue to contribute his social security in his home country and would not have to contribute PF in India. However, India's social security agreements with only a few countries are in force - largely European countries and Korea. India does not have such an agreement with UK or the US, for instance. On the flip side, Indian techies deputed to the US have to pay social security there and do not get the benefit of such contributions on their return to India.

"It is expected that post collection of such data, EPFO offices will carry out audits and could serve notices on India Inc for non compliance," according to sources in the PF department. 

Times of India, New Delhi, 05-04-2014