The Supreme Court’s announcement On the Employees’ Pension (Amendment) Scheme, 2014
Karma Management Global Consulting Solutions Pvt. Ltd. one of the top 5 labour law consulting firms in the country, has recently hit upon yet another significant milestone in the journey of tying up with SUNDEEP PURI ASSOCIATES AND ADVOCATE, where both these Firms have Formally joined hands together to collaborate and create a bigger alliance by up scaling its business on pan India basis and Internationally to give greater reach of its Services together, to its hundreds of clients all over.
Sundeep Puri & Associates (SD Puri& Co.) with 55+ years of existence and helmed by Adv. Sundeep Puri & Adv. Ravi Paranjpe is one of the largest retainer firms in India specializing in “Employment Laws” advising the Corporate Sector. The Firm boasts of some clients being associated since the last 55+ years and majority since last 30-40 years. They have extensive experience in counselling Foreign MNCs & Indian MNC Clients having multi-locational Factories &/or offices Pan-India on a daily basis on a wide range of “Employment & Labour” issues, keeping in view the cultural diversity of the workforce such as Acquisitions, Mergers, Consolidations, Reductions in work force, Maintaining union free environment by not undermining the principles of collective bargaining & also preserving operational flexibility in unionised settings, providing tailor made models for conflict free, productivity conducive Industrial Environment, as also in respect to Applicability of the various labour laws. They believe in Solution oriented Practical Advice backed by Law.
On the other hand, Karma Management Global Consulting Solutions Pvt. Ltd. since 2004 is backed by 25 years of prior experience since 1979 , operating on pan India basis and Internationally in America and EMEA, helmed by Pratik Vaidya , is a leading giant in payroll management, compliance and governance, human resource services, professional Employment staffing and on boarding, recruitment and talent acquisition, advisory and consultations thereby offering a plethora of services with quick turn-around solutions including in-house flagship AI/ML based tech solutions so as to help organizations of different types and stature to perform better in Human Resource ensuring Risk Management, Compliance and Governance across Environmental, Social and Corporate laws and grow bigger.
So in this regard, besides the business profile of Karma relating to labour laws, it will now focus whole time also on legal and para legal issues and matters with the collaboration of Sundeeep Puri & Associates who are already into legal matters such as disputes, litigation, and court cases.
The EPFO Pension Background and How Did This Come About!
The Government of India is empowered by Section 6A of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (“Act”), to frame a scheme called the Employees’ Pension Scheme for the purpose of providing for the:
(i) superannuation pension, retiring pension or permanent total disablement pension to the employees of establishments governed by the Act; and
(ii) widow/widower’s pension, children pension or orphan pension payable to the beneficiaries of such employees.
The Amendment Takes Shape in Pursuance of Section 6a
Accordingly, the Government of India issued notification no. G.S.R. 609(E) dated August 22, 2014; framing the Employees’ Pension (Amendment) Scheme, 2014 (“Scheme”).
This acted as an amendment to the then extant pension scheme, and brought forth several noteworthy changes thereto, including:
(i) limiting the maximum pensionable salary to Rs. 15,000/-;
(ii) requiring employees within the amended regime to contribute at the rate of 1.16% on the salary exceeding Rs. 15,000/-;
(iii) requiring fresh options to be exercised by members within six months from September 1, 2014 (extendable up to six months on sufficient cause shown); and
(iv) stipulating that in the event no option is exercised by a member within the period specified, it would be deemed that the member in question has not opted for contribution over the wage ceiling and therefore, the contributions made beyond the wage limit (for such a member) would be diverted to the provident fund account along with interest pursuant to the provident fund scheme.
Supreme Court’s announcement On the Employees’ Pension – The Threshold Limit of 15000 For Joining the Pension Gets Quashed!!!!
In a landmark judgment, the Supreme Court upheld the provisions of the Employee’s Pension (Amendment) Scheme 2014 as legal and valid, while reading down certain provisions of the scheme concerning current members. But quashed the threshold limit of Rs 15,000 monthly salary for joining the pension fund.
The Employees Provident Fund Organization and the Union Government had filed appeals in the Supreme Court challenging the Kerala, Rajasthan and Delhi High Court judgments which had quashed the Employee’s Pension (Amendment) Scheme, 2014.
A bench of Chief Justice UU Lalit and Justices Aniruddha Bose and Sudhanshu Dhulia read down certain provisions of the scheme.
Supreme Court’s announcement On the Employees’ Pension – Situation before amendment
Previously, every employee who became a member of the 1952 Employees Provident Fund Scheme as on November 16, 1995, could avail of the EPS. In the pre-amended version of EPS-1995, the maximum pensionable salary cap was ₹6,500.
Supreme Court’s announcement On the Employees’ Pension – After amendment
The 2014 amendments to the EPS, which included changes in paragraph 11(3) and by inserting a new paragraph 11(4), had raised the cap from ₹6,500 to ₹15,000. Paragraph 11(4) said only employees, who were existing EPS members as on September 1, 2014, could continue to contribute to the pension fund in accordance with their actual salaries. They were given a window of six months to opt for the new pension regime.
Besides 11(4) created an additional obligation for members whose salaries exceeded the ₹15,000 ceiling, they had to contribute at the rate of 1.16 per cent of the salary. The Friday judgment, authored by Justice Bose for the Bench, found this additional requirement on members as ultra vires.
The court held that the amendments to the pension scheme notified on August 22, 2014, would apply to the employees of “exempted establishments” in the list of the Employees Provident Fund Organization (EPFO), which consists of 1,300 companies and entities, in the same manner as for the staff of regular establishments.
Again, the pensionable salary was an average of 12 months’ pay before the date of the employee’s exit from the EPS. The amendments had extended the period of calculation of average pensionable salary from 12 months to 60 months.
Using its extraordinary powers under Article 142 of the Constitution, the court removed the cut-off date of September 1, 2014.
Eligible employees who could not join the scheme by the cut-off date should be given an additional chance, stated the SC, as there was a lack of clarity on the issue in view of judgments passed by the high courts of Kerala, Rajasthan and Delhi.
“Till recently, there was uncertainty about the amendment scheme which was quashed by the three High Courts. Thus, all employees who did not exercise the option (of joining the amended pension scheme) when they were entitled to do so, but could not do it due to the interpretation of the cut-off date should be given a further chance to exercise their option. Under these circumstances, the time to exercise the option shall stand extended by four months,” the court directed.
The court, in this regard, referred to the R.C. Gupta case, which had said that a “beneficial scheme” like EPS-1995 “ought not to be allowed to be defeated by reference to a cut-off date like September 1, 2014”.
The court enabled authorities to make adjustments in the scheme so that the additional contribution can be generated from other legitimate sources within the scope of the Act, “which could include enhancing the rate of contribution of the employers,” the judgment said.
It did not want to speculate on how the authorities would find the money for the payment of the additional contribution and said that legislature and the scheme framers would be in-charge to make the necessary amendments.
The court further held that employees who retire before September 1, 2014, without exercising any option would not be entitled to this judgment.
Those who had retired before September 1, 2014, upon exercising the pension scheme option under 11(3) of the 1995 scheme, would be covered by the provisions of paragraph 11(3).
Supreme Court’s announcement On the Employees’ Pension – Summarization of Supreme Court’s Findings
The provisions contained in the notification dated 22.08.2014 are legal and valid but some provisions of the scheme have been read down.
Amendment to the pension scheme brought about by the notification dated 22.08.2014 shall apply to the employees of the exempted establishments in the same manner as the employees of the regular establishments. Transfer of funds from the exempted establishments shall be in the manner as we have already directed.
The employees who had exercised option under the proviso to paragraph 11(3) of the 1995 scheme and continued to be in service as on 01.09.2014, will be guided by the amended provisions of paragraph 11(4) of the pension scheme.
The members of the scheme, who did not exercise option, as contemplated in the proviso to paragraph 11(3) of the pension scheme (as it was before the 2014 Amendment) would be entitled to exercise option under paragraph 11(4) of the post amendment scheme. The scheme as it stood before 01.09.2014 did not provide for any cut-off date and thus those members shall be entitled to exercise option in terms of paragraph11(4) of the scheme, as it stands at present. Their exercise of option shall be in the nature of joint options covering pre-amended paragraph 11(3) as also the amended paragraph 11(4) of the pension scheme. There was uncertainty as regards validity of the post amendment scheme, which was quashed by the judgments of the three High Courts. Thus, all the employees who did not exercise option but were entitled to do so but could not due to the interpretation on cut-off date by the authorities, ought to be given a further chance to exercise their option. Time to exercise option under paragraph 11(4) of the scheme, under these circumstances, shall stand extended by a further period of four months.
The employees who had retired prior to 01.09.2014 without exercising any option under paragraph 11(3) of the pre-amendment scheme have already exited from the membership thereof. They would not be entitled to the benefit of this judgment.
The employees who have retired before 01.09.2014 upon exercising option under paragraph 11(3) of the 1995 scheme shall be covered by the provisions of the paragraph 11(3) of the pension scheme as it stood prior to the amendment of 2014.
The requirement of the members to contribute at the rate of 1.16 per cent of their salary to the extent such salary exceeds Rs.15000/- per month as an additional contribution under the amended scheme is held to be ultra vires the provisions of the 1952 Act. The operation of this part of the order will, however, be suspended for a period of six months in order to enable the authorities to make adjustments in the scheme so that the additional contribution can be generated from some other legitimate source within the scope of the Act, which could include enhancing the rate of contribution of the employers. For the aforesaid period of six months or till such time any amendment is made, whichever is earlier, the employees’ contribution shall be as stop gap measure. The said sum shall be adjustable on the basis of alteration to the scheme that may be made. The Court observed,
“we cannot ignore the fact that the pension amount to be paid has been calculated on projections that the corpus would include the option employees’ additional contribution of 1.16 per cent. We also cannot mandate the Central Government to contribute to a pension scheme, in absence of a legislative provision to that effect. It would be for the administrators to readjust the contribution pattern within the scope of the statute and one possible solution could be to raise the level of the employer’s contribution in the scheme.”
No flaw found in altering the basis for computation of pensionable salary.
The fund authorities shall implement the directives contained in RC Gupta v. Regional Provident Fund Commissioner, Employees Provident Fund Organization, (2018) 14 SSC 809, within a period of eight weeks, subject to our directions contained earlier in this paragraph. The Court has agreed with the Division Bench’s interpretation of the proviso to paragraph 11(3) (pre-amendment) pension scheme in the said judgment.
Supreme Court’s announcement On the Employees’ Pension – Impact of judgement
The Supreme Court judgement of November 4, 2022 has an impact on employees and employers.
Supreme Court’s announcement On the Employees’ Pension – Impact on employees
Our understanding of the different categories of eligible employees is set out below:
|
Category |
Eligible to opt for higher pension now? |
| Existing employees who had not exercised their option for higher/ uncapped pension | Yes |
| Existing employees who had exercised their option for higher/ uncapped pension under 11(3), even if they had not exercised the fresh option in 2014 within 6 months | Yes |
| Employees who have retired on or after September 1, 2014, with or without exercising their option for higher/ uncapped pension | Yes |
| Employees who retired prior to September 1, 2014, after having exercised their option for higher/ uncapped pension under 11(3) | Yes |
| Employees who retired prior to September 1, 2014, without exercising their option for higher/ uncapped pension under 11(3) | No |
| Employees who joined on or after September 1, 2014, with reckonable salary over the statutory threshold of Rs. 15,000 per month | No |
Conclusion
At this stage, this would probably need more clarity, post the legislative changes envisaged to make EPS more viable and ensure its continuity.
What we do understand is that there may be many employees who will be eligible for the higher/ uncapped option. For those employees who exercise this option, employers may have to trace reckonable salary from the date of their joining and apply the appropriate contribution rates on a month-to-month basis. While unexempted employers would merely have to communicate these numbers, the exempted employers would have to transfer the necessary amounts to the EPFO and ensure that the credit is made to the correct employees, at the correct levels. Also, employers would need to align their administration systems to being able to implement such option as and when an employee exercises it.
There is a 4-month window from the passing of the judgement, for employees to opt for higher/ uncapped pension. Employers also need to understand the implications, in order to effectively communicate this to their employees and to facilitate the implementation of the same.
From an employee perspective, as things stand today, initial calculations suggest that opting for EPS may provide better value. Having said that, calculations can differ based on individual circumstances, assumptions about future events, and preferences for lump sum versus annuity pay-outs. As a legislative amendment is imminent in the near future, it is difficult to say by how much an employee would stand to gain in the future by selecting such an option. While it may be able to measure the immediate impact based on the current scheme, the final impact would manifest only after any envisaged legislative changes have been given effect to.
Karma Management Global Consulting Solutions Pvt Ltd works across a wide variety of industries, constantly looking for ways to offer new services and increase its global businesses.
In order to serve today’s technology to techy savvy clients and employees, Karma Global planned much ahead of its time by adapting to processes and systems to accommodate the quickly changing markets.
As Industry is continuing to get more and more competitive, Karma Global is bridging the gap, setting itself in tune with the latest technology trends in order to maintain a competitive advantage for all its over 400 domestic and global clients.
Automation and AI – Karma Global was among the first to improve efficiencies, the first in the vendor auditing process to fully automate and streamline any and all processes surrounding the auditing business of entity and vendors.
The chat bot and AI did a fabulous job of giving machine output, with a quicker pace, cheaper rate, and more accurate level of auditing and reporting.
This helped in elevating the roles of our Auditors to focus on complex tasks that require more brainpower or the human touch, leaving some of its task to the capabilities of the machine.
Incorporating chat bots in customer service allowed time for our expert representatives to spend time dealing with more complex issues which could ultimately add to the user experience and this is what set us apart from others.
Automating repetitive processes in our systems helped us free the valuable time of our expert staff allowing them to reach out to more clients.
For this purpose, Karma Global has both full time IT related staff and also indirect staff who are freelancing with us for enhancing our IT capabilities to the next level on the cloud platform.
Also, clients with litigation issues and disputes, could take the help of Karma Global in sorting this out since it now has a formidable partner by the name of Sundeep Puri & Associates to provide further solutions on such or any legal entanglements.
Proprietary blog of Karma Global
This blog has been compiled and collated by the internal staff of Karma Global with the knowledge and expertise that they possess, for its monthly newsletter Issue 06 of December 2022 and in case of specific or general information or compliance updates for that matter, kindly reach out to the
Marketing Team – Kush@karmamgmt.com / yashika@karmamgmt.com