AN ANALYSIS OF THE EMPLOYEES' PROVIDENT FUND, FAMILY PENSION AND...
AN ANALYSIS OF THE EMPLOYEES' PROVIDENT FUND, FAMILY
PENSION AND DEPOSIT-LINKED INSURANCE SCHEMES
A. M. SARMA
The Scheme of Compulsory Contributory Provident Fund, framed under the Employees'
Provident Funds and Miscellaneous Provisions Act, 1952 completed 25 years of its existence.
The introduction of Employees' Family Pension Scheme in 1971 and Employees' Deposit-
Linked Insurance Scheme in 1976 are important landmarks in the progress of social security
measures and in the history of Employees' Provident Fund Organisation in our country.
This paper seeks to analyse the progress and contribution made by these three Schemes
under the administrative set-up of the Employees' Provident Fund Organisation and also
suggests various measures for their overall improvement.
Dr. A. M. Sarma is member of the Faculty of Personnel Management and Industrial
Relations, Tata Institute of Social Sciences, Bombay.
The Employees' Provident funds Scheme,
respective of their length of service. The
1952
period of service for eligibility to become a
member of the fund is 6 months' continuous
The Employees' Provident Fund Act 1952 service or 120 days of actual work during
was enacted to provide substantial security a period of 6 months or less or on be-
and timely monetary assistance to indus-
coming permanent, whichever is earlier.
trial employees and their families. A great From its modest beginning in 1952 with
majority of wage earners have neither the 6 industries and 1.2 million subscribers,
capacity nor the foresight to save during it has now spread out to 153 industries/
the period of their working life. Left to classes of establishments affording shelter to
themselves very few employers would help 93.14 lakhs of subscribers. For the first
and encourage their employees to save for time, the provisions of the Act have been
the rainy day. This Scheme has provided extended to unorganised sector with the
protection to employees and their depen-
coverage of bidi workers in the bidi in-
dents in case of old age, disablement, early dustry. The details of coverage of the Act
death of the bread-winner and in some from 1970 to 1978 are given in Table 1.
other contingencies.
Contributions: Except in the case of
Coverage: The Act extends to the whole certain specified industries and classes of
of India except the state of Jammu and establishments, the statutory rate of pro-
Kashmir. The Act is applicable to fac-
vident fund contributions both for the
tories and other establishments, engaged in employees and the employers is 61/4 per
specified industries, which have completed cent of 'pay' i e . basic wages, dearness
3 years of their existence if they employ allowance including cash value of food
50 or more persons or 5 years of their concession and retaining allowance, if any.
existence if they employ between 20 The Central Government have been
and 49 persons. No distinction is made empowered to enhance it to 8 per cent for
between establishments situated in the any industry/class of establishment. The
private sector and those in the public number of establishments to which the
sector. However, the Act does not apply to enhanced rate of 8 per cent was made
co-operative societies employing less than applicable was 21.458 and the number of
50 persons and working without the aid subscribers who contributed at that rate
of power. Permanent employees drawing was 64.74 lakhs as on 31st March 1978.
pay not exceeding Rs. 1,600 per month are The total amount of Provident fund
eligible for membership of the fund ir-
contributions collected in both the exempted

90
A. M. SARMA
TABLE 1
COVERAGE OF THE EMPLOYEES' PROVIDENT F U N D S SCHEME
(1970 to 1978)
Source: Annual Reports of the Employees' Provident Fund Organisation for the respective years.
and unexempted establishments stood at
Realisation of Provident Fund Arrears:
Rs. 5,185.96 crores since the inception of The total amount of provident fund
the Scheme.
contribution in arrears amounted to
Investments: The total investment of Rs. 1827.25 lakhs as on 31st March 1977.
provident fund accumulations amounted to Besides, this, an amount of Rs. 50.90 lakhs
Rs. 3,518.74 crores as on 31st March was due on account of administrative
1977. Table 2 indicates an analysis of the charges and Rs. 1,017.99 lakhs towards
investments made during the year 1976-77. penal damages. Out of the total arrears
of Rs. 18.27 crores, 6 industries, viz.,
TABLE 2
textile, electrical, mechanical and general
INVESTMENTS M A D E IN EXEMPTED AND
engineering, electricity, tea and tea planta-
UNEXEMPTED ESTABLISHMENTS
tion, newspaper establishments and trading
(1976-77)
and commercial establishments alone
accounted for Rs. 14.10 crores which works
out to 76 per cent of the total arrears. The
P.F. contribution in arrears which was of
the tune of Rs. 20.66 crores in 1971-72
came down to Rs. 18.27 crores by the end
of March 1977. The arrears position of
provident fund is given in Table 3.
Action Against Defaulting Establish-
ments: The enforcement of the Act creates
many problems in the case of defaulting
establishments. The most common defaults
noticed in exempted establishments were
failure to deposit the funds with the Board
of Trustees, non-investment of the investible
Source: 24th Annual Report 1976-77.

AN ANALYSIS OF THE EMPLOYEES' PROVIDENT FUND
91
TABLE 3
ARREARS OF PROVIDENT FUND CONTRIBUTIONS
(1972 to 1977)
Year
P.F. con-
P. F. con-
Recovery
A m o u n t
Amount
ending
tributions
tributions
cases
involved
received
received
in arrears
instituted
(Rs. in lakhs)
(Rs. in lakhs)
(Rs. in crores)
(Rs. in crores)
(1)
(2)
(3)
(4)
(5)
(6)
31-3-1972
359.42
20.66
4359
374.10
205.60
31-3-1973
387.47
19.61
4891
545.45
363.14
31-3-1974
1082.54
19.06
3052
279.04
518.65
31-3-1975
1256.43
19.34
2885
853.08
130.98
31-3-1976
1467.52
20.64
4285
1140.43
995.64
31-3-1977
1685.17
18.27
4945
484.84
503.23
Source: Annual Reports for the respective years.
funds in time, non-payment of the monthly payment of provident fund contributions
inspection charges and non-submission of and administrative and inspection charges
the monthly returns to the regional office. respectively during the same year. Under
The National Commission on Labour had the provisions of the Act, so far 351
also noticed that "the recovery of arrears employers were imprisoned for default in
of the provident fund is posing a problem the payment of provident fund realised
to the administration". The employers who from the employees.
default in the remittance of employees
Advances: A statement indicating the
contribution 'are prosecuted under sections number of cases in which advances were
406/409 of the Indian Penal Code. During sanctioned, the purpose of the advances
the year 1977, recovery cases of 4,945 were and the amount paid from 1972 to 1977
instituted involving a sum of Rs. 484.84 is given in table No. 4.
lakhs. An amount of Rs. 503.23 lakhs was
Refunds and Claims: The most important
also realised through the recovery process. aspect of the Scheme from the workers'
Against the defaulting employers, 14678 point of view is that of claims settlement.
prosecution cases were launched during the Under the Scheme, a member could with-
year 1977. Out of 3,132 public sector draw the full amount standing to his credit
establishments, 478 establishments did not in the fund in the following events:
comply with the provisions of the Scheme
as on 31st March, 1977. The number of
(i) Retirement from service after attain-
complaints filed in 1976-77 were 240 under
ing the age of 55.
sections 406/409 of the Indian Penal Code
(ii) Retirement on account of permanent
against the employers of defaulting
and total incapacity.
unexempted establishments who failed to
remit the workers' share of contribution
(iii) Migration from India for permanent
deducted from their wages, bringing the
settlement abroad.
total number of complaints filed so far to
(iv) Termination of service in the course
846. A sum of Rs. 36.64 lakhs and Rs. 1.22
of mass retrenchment (involving 3
lakhs were collected as damages on belated
or more persons).

92
A. M. SARMA
During the year 1976-77, a sum of together with interest thereon. During the
Rs. 80.53 crores in respect of 3.25 lakhs year, a sum of Rs. 4.59 lakhs was paid
claims was paid as against Rs. 67.10 out of this fund bringing the total amount
crores in respect of 2.89 lakhs claims paid, since the institution of this fund to
during 1975-76. The claims settled within Rs. 120.96 lakhs. The Death Relief Fund
10 days was 58 per cent in 1975-76 as assures a minimum sum of Rs. 1000 to
compared to 56 per cent during the the nominee of a deceased member. Till
previous year and 40 per cent in 1974-75. the end of March 1977, a total sum of
Till the end of March 1977, a total sum Rs. 92.03 lakhs had been paid out of this
of Rs. 482.41 crores has been paid out fund. A sum of Rs. 6.19 lakhs was paid
of this fund in respect of 38.77 lakhs claims. during the year 1977 in 1842 cases as
The categorywise particulars of the claims against Rs. 7.31 lakhs paid in 2,019 cases
settled from 1971-72 to 1976-77 are given in 1975-76.
in table No. 5.
Annual Statements of Account: During
Nomination: The nomination form is to the year 1977, 81.93 lakhs annual state-
be filled out in duplicate one of which the ments of account were issued as compared
member will keep. The exemption limit for to 69.70 lakhs issued during the previous
production of estate duty clearance certi-
year, leaving a balance of Rs. 17.64 lakhs
ficate by the legal heirs of the deceased statements to be issued at the end of the
member has been increased recently from year.
Rs. 10,000 to Rs. 25,000 by issue of suita-
ble directions from the Ministry of THE EMPLOYEES' FAMILY PENSION SCHEME
Finance, Central Board of Direct Taxes.
1971
Reserve and Forfeiture Account: Where
the employers' contribution is not payable
With a view to providing long-term
to the member in full because of the total financial security to the families in the
period of membership is less than 15 years, events of the members' premature death
the unpaid part together with interest while in service, a Scheme of Family Pen-
thereon is credited to the Reserve and sion-cum-Life Assurance came into force
Forfeiture Account of the Fund. A sum with effect from 1st March 1971. The
of Rs. 264.36 lakhs was forfeited during Scheme is compulsory for employees who
the year 1976-77 as against Rs. 208.94 have joined the Employees' Provident Fund
lakhs during 1975-76.
after 1-3-71 and optional for others. The
Special Reserve Fund and Death Relief Scheme provides for the creation of a
Fund: One of the welcome features of the Family Pension Fund by diverting to it a
Scheme was the creation of a Special part of the contribution to the Provident
Reserve Fund in 1960 and Death Relief Fund representing 11/6 per cent em-
Fund in 1964. Assistance from the Special ployee's 'pay' i.e. basic wages, dearness
Reserve Fund is made available to the allowance including cash value of food
outgoing members or their nominees/heirs concession and retaining allowance,
if the employers failed to remit to the if any, along with an equivalent
Fund whole or part of the provident fund amount of 11/6 per cent from and out
contributions. The payment is limited only of the employer's contribution. To this
to the extent of the employees' share of amount, the Central Government also
contribution recovered from the wages by contributes at 11/6 per cent of the pay of
the employer but not remitted to the fund the member. Out of this fund so set up.



AN ANALYSIS OF THE EMPLOYEES' PROVIDENT FUND
95
the family pension and other benefits are
TABLE 6
payable at prescribed scales to the family CATEGORY-WISE SETTLEMENT OF FAMILY PENSION
members of the employees who die while in
DURING THE YEAR 1976
service before attaining the age of retire-
ment, that is, 60 years. After retirement
of the member no pension is payable
except a lump sum maximum amount of
Rs. 4,000/-, the actual amount depending
upon the age of entry into the Scheme.
The scheme, however, has an insurance
element since in the event of an employee's
death his family gets a lump sum of Rs.
1,000/- as life assurance benefit in addi-
tion to the pension irrespective of the
amount credited to his fund. In case of
cessation of membership before attaining
the age of 60 years for reasons other than
death, a substantial withdrawal benefit shall
Source: Annual Report 1975-76.
accrue to the member of the Family
Pension Fund.
Provident Funds and Miscellaneous Provi-
There were 42.46 lakhs members of the sions Act, 1952 applies. All the provident
Family Pension Scheme as on 31st March fund member-employees both in the
1978. During the year 1977, a sum of exempted and unexempted establishments
Rs. 27.43 crores was collected by way of are covered under this Scheme. The
family pension contributions bringing the employers and the Central Government are
total amount received upto 31st March, required to pay contributions to the
1977 to Rs. 81.61 crores. A sum of Rs. 58.57 Insurance Fund at the rate of 0.5 per cent
lakhs was in arrears towards family pension and 0.25 per cent respectively of the basic
contributions from the defaulting establish-
wages, dearness allowance including cash
ments. As many as 3839 prosecution cases value of food concession and retaining
under section 14 of the Act and 2268 allowance, if any, of the pay in respect of
recovery cases under section 8 of the Act the covered employees. In addition to this,
have been filed against these defaulting the employers of all covered establishments
establishments during the year 1976-77. The are required to pay administrative charges
total amount paid out of this fund upto to the Insurance Fund, at the rate of 0.1
the end of March 1977 was Rs. 107.11 per cent of the pay drawn by the employee-
lakhs in respect of 1.02,748 claims. The members for meeting the administrative
categorywise settlement during the year expenses. The Central Government also
1976 is given in table 6.
meets partly the expenses in connection
with the administration of the Insurance
THE EMPLOYEES' DEPOSIT-LINKED
Scheme by paying into the fund an amount
INSURANCE SCHEME, 1976
at the rate of 0.05 per cent of the pay
drawn by the employee-members. Thus
The Scheme came into force from 1st the special feature of this scheme is that
August, 1976. It is applicable to all factories the members are not required to contribute
establishments to which the Employees' to the Insurance Fund; only the employers

96
A. M. SARMA
and the Government are required to pay Delhi. The Regional Committees advise the
contributions. Under the Scheme, the Central Board on matters connected with
nominees/members of the family of the administration of the Scheme in their
employees of covered establishments will respective states. Eleven Sub-Regional
get in the event of the death of an employee Provident Fund Offices have also been
while in service an additional amount equal opened in some regions and it is proposed
to the average balance in the provident to open eight more in various states to
fund account of the deceased during the render better services to the subscribers of
preceding three years, if such average the fund. The authorised strength of the
balance was not below Rs. 1,000. The officers and staff of the E.P.F. organisation
maximum amount of benefits payable under during the year 1977 was 7,495 as against
the Scheme is, however, extended to 6,324 in the previous year. The number of
Rs. 10,000.
officers and staff in position was 6,884 as
There is provision in the Scheme for on 31st March, 1977. The average number
exemption of factories/establishments which of inspections per inspector per month was
have an Insurance Scheme conferring more 47 during the year 1976-77. Under the
benefits than those provided under this rules, the inspector has to visit each unit
statutory Scheme, if a majority of the at least once in four months i.e. thrice a
employees are in favour of such exemption. year. The administrative and allied
Subject to certain conditions, individual expenditure is met from special levies,
employees or class of employees may also called administrative and inspection
be granted exemption. Under this Scheme, charges, collected from the employers of
contributions and administrative charges unexempted and exempted establishments
amounting to Rs. 7.17 crores and Rs. 1.51 at the rates of 0.37 per cent and 0.09 per
crores respectively have been received cent respectively of 'pay' of the members.
from the employers and an amount of The external audit of the fund is conducted
Rs. 2.87 lakhs has been paid against 34 by the Comptroller and Auditor-General of
claims as on 31st March, 1977.
India through the various Accountants-
The Implementation Machinery: The
General.
Employees' Provident Fund Organisation is
A Conference of the Regional Provident
now in charge of three important Schemes, Fund Commissioners was held at New
viz., the Employees' Provident Funds Delhi on 16th and 17th September, 1976
Scheme, the Employees' Family Pension to discuss various ways and means to
Scheme and the Employees' Deposit-
render quick and efficient service to the
Linked Insurance Scheme. These three members. The important decision taken
Schemes are administered by a Tripartite and the recommendations made in the
Board of Trustees, a body corporate, Conference by the Regional Commissioners
consisting of a Government-nominated are given below:
Chairman, nominees of the Central and
State Governments and Employees' and
(1) The Act should be added to the
Employers' organizations. The Central Schedule of Economic Offences (In-
Provident Fund Commissioner is the Chief applicability of Limitations) Act. 1974
Executive Officer of the organization and particularly as some courts are now of the
Secretary to the Central Board of Trustees. view that prosecution under the Employees'
He is assisted by Regional Provident Fund Provident Funds and Miscellaneous Provi-
Commissioners, one in each State and in sions Act comes, within the limitations

AN ANALYSIS OF THE EMPLOYEES' PROVIDENT FUND
97
provisions of the Criminal Procedural mended that the Central Provident Fund
Code.
Commissioner should be empowered to
(ii) Keeping in view that a large number cover the establishment under section 1(4)
of writ petitions have been filed against of the Act by the issue of a simple order
the organization and the fact that stay was and the Government may be approached to
granted in most of the cases liberally, it amend the Act suitably.
was recommended that each Regional
(viii) The Commissioners also recom-
Office as well as the Central Office should mended that a post of Director of Personnel-
be provided with a legal cell and a full cum-Training may be created to handle
time Legal Adviser at the headquarters of staff matters and for imparting training to
the organisation. The Commissioners also the employees at the time of initial
felt that it will be very necessary to have recruitment and also at the intermediate
a panel of lawyers, independent of the levels.
standing government counsels of the
Central Government at the various head-
The following are some of the recent
quarters as the standing Government steps initiated by the Government to
counsels could not pay much attention to benefit the provident fund subscribers
the cases of Employees' Provident Fund and to gear up the working of the
Organisation as they were otherwise heavily Employees' Provident Fund Organization:
overburdened.
1. The interest rate on provident fund
(viii) The Commissioners recommended is increased from the existing 8 per cent
that the law may be suitably amended so to 8.25 per cent for the current financial
that the claimants would not have to spend year in order to give a reasonable yield
a lot of time and money in obtaining the on the people's money. The provident fund
Estate Duty Clearance Certificates.
organisation has also granted bonus interest
(iv) The Commissioners also felt that the of 1/2 per cent to those who have not
existing pattern of investment should be withdrawn money from their account during
further liberalised with a view to realising 1976-77 and 1977-78.
better yield therefrom, which in turn would
2. Vigilance cells have been set up to
be utilized to credit higher rate of interest monitor the working of the Provident Fund
to the members.
Offices and establishments and to check
(v) The Commissioners also considered corruption and defalcation of funds.
in detail the proposal regarding issue of
3. Pass book system has been proposed.
pass book folders instead of statements of
4. A training cell and an internal study
accounts and recommended that instead of unit, headed by the Director of Manage-
the present long slip called the annual ment, to distribute the work on scientific
statements of accounts in Form No. 23, a lines have been introduced.
pass book folder containing the full 5. A special squad of inspectors under
details of the member, name of the the Central Provident Fund Commissioner
establishment, account No. and details of have been pressed into service to carry
contributions, particulars of nominations out surprise checks in various establish-
made etc., should be introduced.
ments.
(vi) The Commissioners recommended
6. Sub-Regional Provident Fund Offices
that the procedure for withdrawal and have been opened in Amritsar, Asansol,
grant of advances should be simplified.
Rajkot, Raipur, Ranchi, Coimbatore and,
(vii) The Commissioners also recom-
Varanasi to meet increasing responsibilities.

98
A. M. SARMA.
7. Necessary steps have been taken to made to secure compliance from the non-
expedite the presentation of annual state-
complying establishments both in public
ments from the various Regional Offices. and private sector.
8. The Centre directed the State 4. Special Employees' Provident Fund
Governments to set up special courts to Courts may be constituted on the lines of
realize provident fund arrears and penalise the Employees' State Insurance Courts for
the defaulting employers. The amount adjudication of cases relating to provident
runs into crores and the Act at present fund.
does not provide for recovery of dues as
5. In unexempted units, the sanctioning
arrears of land revenue from the exempted of advances and settlement of claims are
establishments. However, the union
made by the Regional Provident Fund
Government proposes to amend the Act offices. It involves considerable procedural
in this regard.
delays. It needs to be minimised and the
9. The establishments exempted under procedure for grant of advances is to be
section 17 of the Act have to deposit the simplified for effective functioning of the
provident fund contributions with their Scheme,
own Board of Trustees for investment
6. The rate of interest on EPF deposits
notified by the Central Government from is lower as compared to the bank rate.
time to time. In case of violation of this Consequent upon inflation there is erosion
condition, the exemption has been cancelled in real value of deposits in provident fund.
in a number of cases.
So the rate of interest on these deposits
should be brought on a par with bank rate
Suggestions for Improvement
or alternatively some additional benefits,
besides income tax, should be given to the
Some of the management officials, trade subscribers in order to make good the loss
unionists and enforcement authorities suffered by them.
under the Act, when interviewed, have
7. The delay in investment of the provi-
offered the following suggestions for dent fund accumulations is a normal fea-
improvement of the Scheme:
ture in many of the exempted establish-
1. An intensive drive should be made ments. Necessary steps should be taken to
to bring within the purview of the Act all deposit in time the deducted share of
coverable establishments to afford the employees along with that of the employers
benefit of contributory provident fund to so that the delay in non-investment of pro-
the maximum number of employees vident fund money and resultant drop in
employed in those establishments.
the quantum of interest to be credited in
2. The staff position of the organisation the account of the subscriber could be
as a whole is unsatisfactory. The inspec-
avoided.
tion machinery needs to be considerably
8. The word "family" under the Em-
strengthened for effective enforcement and ployees' Family Pension Scheme needs to be
extension of the Scheme.
amended so as to include dependant parents
3. The percentage of increase in under the definition. If an unmarried person
defaulting factories needs to be checked dies, his dependant parents do not get any
effectively. Strict enforcement of the Act and pension under the existing Scheme.
deterrent penalties in respect of habitual
9. The present rate of minimum and
and economically sound defaulters should maximum amount of family pension benefit
be resorted to. All out efforts should be should be raised considerably.

AN ANALYSIS OF THE EMPLOYEES' PROVIDENT FUND
99
10. The employees usually treat the member's wife and children from getting
provident fund on a par with savings bank provident fund benefit. Therefore, a provi-
account and withdraw money in the form sion should be made in the Scheme that in
of advances on slightest pretext. In order such cases provident fund accumulations
to check this tendency, they should be made should be shared equally by the nominee
aware of the various principles of social concerned with the deceased member's wife
security and spirit behind the EPF Scheme. and children.
11. There should be regular programmes
13. The following recommendations of
of education, training and refresher courses the National Commission on labour should
for the staff and administrative personnel be implemented: (a) The Commission has
of the Provident Fund Organization relating suggested extension of the Scheme to esta-
to the philosophy and application of social blishments employing less than 20 persons.
security principles.
(b) The minimum rate of 61/4 per cent
12. Usually, unmarried employee mem-
should be made applicable to units employ-
bers nominate their dependant parents to ing 10 to 20 employees and wherever the
receive provident fund accumulations. But present rate of contribution is 61/4 per cent it
due to one reason or the other, they fail to should be raised to 8 per cent and where
make necessary changes in nomination the existing rate of contribution is 8 per
after marriage. It deprives the deceased cent, it should be raised to 10 per cent.
REFERENCES
Employees' Provident
24th Annual Report 1976-77.
Fund Organization
Office of the Central
Provident Fund
Commissioner
New Delhi
Sonarikar S. Sunanda
Implementation of Labour Enactments, Bombay: Popular Praka-
1976
shan.
Government of India
Report of the National Commission on Labour.
Ministry of Labour,
Employment and
Rehabilitation,
1969
Government of India
Indian Labour Journal.
Ministry of Labour,
August 1978