What happens when employers delay or default on Employee Provident fund contributions?

You are not an HR in India until you have handled your first notice from the EPFO department. I was fortunate to have handled that in my first job back in 2010 and have faced them almost every other year since.

While India has hundreds of Labour compliances to deal with, the EPFO or Employees Provident Fund Organization is the one with the regulatory zeal and resources to actually ensure compliance from every Indian company big or small with the small exception that you are so big that you have your own Exempted PF trust.

Recently, the social media handle of EPFO shared the poster that inspired today's #AskHr with Mohit Shetty edition.

In today's article, I will simplify the 3 key issues shared in the poster:

a) What happens when an employer defaults on paying an EPFO contribution.

b) What are "Damages" as per 14B?

c) How is interest levied under section 7Q

and sum up some practical steps that you can take to avoid all the above.

What happens when an employer defaults on paying an EPFO contribution.

When an employer fails to pay EPFO contributions, the EPFO has several options for recovering the unpaid amount.

The first step is to send a notice to the employer, requesting that they pay the outstanding amount within a certain time frame.

If the employer fails to comply with the notice, the EPFO has the authority to sue them. This can include filing a complaint with the Regional Provident Fund Commissioner, who has the authority to order the unpaid amount to be recovered.

In some cases, the EPFO may also file for attachment and sale of the employer's property in order to recover the unpaid amount.

What are "Damages" under section 14B?

Now, in addition to paying the unpaid dues, the employer has to pay two types of penalties.

The first one is that the employer is liable to pay damages to the employees, according to Section 14B of the Employees' Provident Fund and Miscellaneous Provisions Act, 1952.?

The percentage of damages varies depending on the period of default. The following are the various percentages of damages that employers must pay for default periods ranging from 2 to 6 months:

• For a default period of less than 2 months : 5% of unpaid contributions per annum
• For a default period between 2-4 months : 10% of unpaid contributions per annum
• For a default period between 4-6 months : 15% of unpaid contributions per annum
• For a default period of more than 6 months: 25% of unpaid contributions per annum

What is "Interest" to be paid under section 7Q?

The second penalty that the employer has to incur in addition to payment of damages is paying a interest on the unpaid EPFO contribution.

Under section 7Q of the EPFO Act, interest is levied on the unpaid EPFO contributions. The interest is calculated at the rate of 12% per annum and is charged from the date on which the contribution was due until the date on which it is paid.

The interest is paid to the EPFO along with the unpaid contribution.

As you can see based on the above penalties, the numbers add up and builds a compelling case for you as an HR to ensure your company is diligent while depositing its EPFO contributions. The question that now comes up is:

What can you do as an employer to avoid missing out on your EPFO contribution?

Here are a few practical steps that employers can take to ensure they do not miss out on paying their EPFO dues:

1. Keep track of due dates: The EPFO has set due dates for the payment of contributions, which vary depending on the size of the organization. Employers should keep track of these due dates and ensure that the contributions are paid on time.
2. Keep accurate records: Employers should maintain accurate records of employee details, such as their salaries and contributions, to ensure that the correct amount is paid to the EPFO.
3. Use the EPFO online portal: The EPFO has an online portal that employers can use to make payments and submit returns. Employers can also check their contribution status and download e-challans on the portal.
4. Seek professional help: Employers can seek professional help from accountants or EPFO consultants to ensure that they are in compliance with the EPFO regulations.
5. Review and reconcile: Employers should regularly review and reconcile their EPFO contributions to ensure that they are up-to-date and no payments are missed.
6. Communicate with Employees: Employers should communicate with their employees and ensure that they are aware of their rights and the benefits provided by the EPFO. This will also help employers to keep accurate records of employee details and avoid any errors while making contributions.

By taking these practical steps, employers can ensure that they meet their EPFO obligations and avoid any legal action or penalties.