Under the EPF Act, the concept of an international worker could either be an Indian worker who has divided his career between India and certain foreign countries or a foreign national working in India. “What this means is that foreign/expat employees working in India are now covered under the EPF Act and appropriate contributions are therefore required to be made with respect to them by their employers in India,” says Sajai Singh of J Sagar Associates.
One sticking point has been the fact that international workers are required to contribute regardless of their monthly salaries. Singh says: “Although an Indian employee is covered under the EPF until the time that their monthly salary surpasses Rs.6,500 (US$146), there is no such ceiling in the case of an international worker.” Thus, a 12% contribution (the obligated level required from an employer hiring more than 20 people) must be made by the Indian employer to the provident fund account of the expatriate worker, irrespective of the worker’s salary.
There are some ambiguities in the implementation of these social security mechanisms, says N Raja Sujith of Majmudar & Co. “The regulation’s use of the term ‘pay’ does not address the typical components of an international worker’s compensation structure.” Not only that, but calculation of the employee’s salary for the purpose of contributions may be contentious, he adds.
Another concern is over tax exemption under the double taxation agreement. In order to obtain it, the employee will need to be paid by an overseas entity. “Under the EPF schemes, the contribution is to be made by the Indian company in the capacity of an ‘employer’ irrespective of the employee’s duration of stay in India,” says Sujith. Between the tax provisions and the social security provisions, there will be different positions taken on use of ‘employer’, which could create confusion and result in litigation.
A recent amendment has also mandated that international workers are only permitted to withdraw their credited accumulated balance in the provident fund if they retire after the age of 58, or retire due to bodily or mental infirmity or due to conditions specified in a social security agreement signed between India and their country of origin. Nohid Nooreyezdan of AZB & Partners says: “This has made it cumbersome for Indian subsidiaries of multinational companies who employ expatriates.”
Social security agreements have been executed between the Indian government and Belgium, France, Germany, Luxembourg and Switzerland. Singh says: “Under these agreements, the local Indian employer is not required to make any contributions since the overseas employers of the international workers contribute to their local social security programmes already.” On the other hand, contributions are required to be made by Indian companies for employees from the US and UK.
The EPF Act will need to be clarified at the implementation stage, and provisions for international workers will need to be streamlined, if the government expects multinational companies to continue to employ expatriates in India.