Provident Fund: Everything You Need To Know About Provident Fund

Provident Fund: Everything You Need To Know About Provident Fund

By the way, if you are a company owner or HR person and interested in getting consulting help for PF management, salary and attendance management of employees or purchasing employee management software that includes automating attendance to salary generation and many more, then do write back to us here

Please note: If you are an employee then ask your HR to consult us, since we get numerous inquiries, we do not find time to handle individual public queries. For such general queries, you can write in the comment section please.

This article is written in 2020 AD, therefore, the rules may have changed by now. But this article will give a good overview of the PF scheme.

Please read the article ahead.

What is a Provident Fund? 

Provident Fund refers to a set amount of money that is set aside as savings to be received, by the employee, after retirement. This has been declared mandatory by the Minimum Wages Act. For the Provident Fund, a particular amount of money is deducted from the salary of an employee at the rate of 2 to 15%. However, the employer must also contribute a similar amount to the fund of an employee. Therefore the Provident Fund of an employee stands out to be a joint contribution by the employer and employee. This fund proves to be useful after retirement or can be used for other purposes as well.

When is the Provident Fund actually received?

The Provident Fund is collected over the working period of the employee and is acquired by the employee after his retirement. The amount is paid in a lump sum. Although one must be careful in using the amount for it is supposed to last them throughout the period of their retirement. This Fund is a scheme established to provide strong financial stability to workers after a certain age when they lose their ability to perform.

However, the fund also stands to help the employees in their times of need and not only after retirement. The amount can be withdrawn even before retirement, but with the risk of a penalty. If the amount is drawn or used before retirement, the employee receives a lesser amount after retirement. One must be very careful with their PF accounts as it is a source of support for the future. For many, it becomes the only source of their daily expenditure after retirement. Hence it is advised to leave the PF account undisturbed, until the right time to receive it.

Categories of Provident Fund:-

The Provident Fund is categorized into two types:-

• The Employees Provident Fund, also known as the EPF.
• The Unorganized Workers Social Security Institute, also known as the UWSSI.

The benefits to be received from both categories of Provident Funds are similar in nature but they operate differently.

Let us discuss, the two different types of Provident Funds, their operations, and the benefits associated with each in detail.

The Employees Provident Fund or EPF:-

The Employee Provident Fund (EPF) was set up on the 28^th of August 1952 as a part of the Government Pension Scheme. This scheme was initiated to aid workers and employees post their retirement. The fund is handled and operated by the Central Government of India via the Labour Ministry. The Employee Provident Fund is a form of savings and investment specifically for salaried employees. Both the employer and the employee contribute 12% of the employee’s salary to their EPF.

Eligibility Criteria for EPF:-

• Employees with a monthly salary of less than Rs.15000, must register for a PF account.
• Employees incurring a salary of more than Rs.15000 per month can also apply for a PF account by acquiring approval from the Assistant Provident Fund Commissioner.
• The Government makes it compulsory for organizations with over 20 employees to register for a Provident Fund Scheme.
• Organizations having less than 20 employees are also eligible to become a part of the scheme, but only on a voluntary basis.
• All states present in India are eligible to acquire this scheme except Jammu and Kashmir. Jammu and Kashmir are the only states that are kept bereft of reaping the benefits of this Employee Provident Fund scheme by the government.

Benefits of an EPF:-

• Having an Employee Provident Fund supports an individual in the long run.
• In case of a financial emergency, the EPF can come to aid the situation.
• An EPF only claims a small percentage of one’s salary on a monthly basis hence it is not much of a burden.
• Gaining a lump sum post-retirement can help plan better for the future.
• Provides Social Security.

Rate of Interest:-

The ongoing rate of interest for a PF account is 8.10%. This amount is added to the employer and employee contribution. The total is calculated at the end of the year. An employee has to continue service in an organization for up to fifteen years in order to receive this benefit and withdraw his/her PF Fund. However, the amount earned as interest in the first five years is not added. The interest incurred from the sixth to tenth year is adjusted against the principal amount. The interest amount gained on eleven years and above is directly added to the PF account.

EPFO (Employees Provident Fund Organization):-

The Provident Fund scheme is India’s largest mandatory Government Pension scheme. The operation of the Employee Provident Fund (EPF) is overseen by the Social Security Agency dedicated to this cause named, the Employee Provident Fund Organization. This organization administers and supervises the operations and distribution of this Fund. The aim of this organization is to provide social security to the workers and employees of the state who depend on the industry for income. The EPFO is one of the largest social insurance organizations in India.

Now let us gain a thorough knowledge of how the EPFO functions and the benefits that can be derived from it.

The EPFO Portal:-

The EPFO portal is designed to cut down on the efforts and time of both the employer and the employee by addressing and answering the queries of individuals regarding the Employee Provident Fund amount, status checks, filing grievances, and availing of online services using registered mobile numbers. The online portal makes it easier to access any information about the EPF.

The EPFO: Background, Context, and Facts

• On October 1, 2014, the government of India launched a Universal Account Number (UAN) for employees covered under the EPFO. The Universal Account Number is a twelve-digit number that is provided to each member under the scheme. This number helps log in to the EPFO portal and conveniently access it. The UAN of an individual remains the same even in the case of switching jobs.
• The Universal Account Number was introduced by the government to help link PFF numbers and funds to a single location.
• During the pandemic, the Indian Government decided to contribute a cumulative amount of three months to the Fund that was supposed to be paid by the employees. The Government of India, as a part of its coronavirus pandemic economic stimulus package, had decided to provide 24% to Employees Provident Fund Organization (EPFO) contributions over three months (which was 12 percent to the employer’s contributions and 12 percent to employee contributions). The UAN is mostly used for tracking the EPF balances and the status of PPF claims.

 Significant Guidelines and Modifications issued in EPS-95 are:

• The increase in earnings amounts from Rs.6500/- to Rs.15000 per month (commenced from 01.09.2014).
• A minimum pension of Rs.1000 per month is being paid to pensioners under the Pension Enhancement Scheme, 1995 as of 01.09.2014 by offering additional budgetary assistance wherever the pension falls below Rs.1000.
• After fulfillment of fifteen years from the date of the commutation, those members who have benefited from commutations of allowances under the erstwhile paragraph 12A of the EPS, 1995, on or before 25.09.2008 will receive an enhanced normal pension.

UWSSIF – Unorganized Workers Social Security Institute

An unorganized worker (or informal worker) is anyone who works for an employer and does not have to comply with any labor laws. Unorganized workers are not insured under the Employees’ Provident Fund Act (EPF), or any other Act.

Section 2(86) defines a non-prepared worker as inclusive of an indentured laborer, a self-hired laborer, or a worker on wages in an unorganized enterprise, and consists of a worker inside the prepared enterprise now no longer included beneath the Industrial Disputes Act, 1947, or sections III (Chapter on Employees Provident Fund) via VII (Chapter on Workers Compensation) of the Code of Social Security, 2020.

Section 2 (35) of the Code on Social Security, 2020 defines a gig employee to intend a character engaged in a process or taking part in an employment arrangement, and income via that pastime outdoor the traditional courting among an organization and an employee. Unorganized employees make up about 93% of the nation’s overall hard workforce. The portal might be a splendid improvement for the shipping of the Last Mile Benefits Scheme to crores of unorganized employees, protecting over 38 crore employees.

By the way, if you are a company owner or HR person and interested in getting consulting help for PF management, salary and attendance management of employees or purchasing employee management software that includes automating attendance to salary generation and many more, then do write back to us here

How to get a Provident Fund?

If you are a worker in India, you should be a part of a provident fund. You get to pick which provident fund you be a part of. The maximum not unusual place provident finances are the Employees Provident Fund (EPF) and the Employees’ State Insurance (ESI). If you be a part of the EPF, you should make a contribution of 12% of your month-to-month salary. Your organization should additionally make a contribution of 12% of your month-to-month salary. The ESI, on the opposite hand, has a set month-to-month contribution rate. You can use the net Provident Fund Contribution Calculator to calculate your PF contributions. If you are a new member, you should post a PF utility. Once your utility paperwork is approved, you may get an EPF ID or an ESI Service Book. You can use e-books to make PF contributions. If you are a current member, you do now no longer want to post a PF utility.

Eligibility Criteria for acquiring the Provident Fund:-

• An employee must be above 18 years of age.

Note: If an individual is below 18 years of age, he/she can only become a part of the EPF if he/she has been employed for six months and more.

• In case an individual is self-employed, he/she can join UWSSI.

Note:-He/She must be registered under the Income Tax Act which ensures he/she pays regular taxes and files income tax returns.

• If one is not registered under the Income Tax Act and is self-employed, then they can join the ESI.

Conclusion:-

In India, the government introduces many schemes to regulate and aid the working class financially and medically. The Provident Fund is one that provides the former. For every individual, Financial Security is a must. From all the information that we read above, it can be gathered that Provident Fund is an extremely significant fund for every working employee and worker. It is a form of secure savings in terms of financial security meant to last through their entire retirement. In fact, the fund is a collective effort with an equal contribution by the employer and the employee. Both contribute a similar percentage to make up the fund. Every worker or employee must ensure that they possess a secure PF account and contribute to it throughout their working period to reap the fruits of their labor post-retirement.

By the way, if you are a company owner or HR person and interested in getting consulting help for PF management, salary and attendance management of employees or purchasing employee management software that includes automating attendance to salary generation and many more, then do write back to us here

– This article is written by Salahkaar Content team Samarpita Ghosh, Narain and Anjali S D.

Concept by Shalav D.