The EPF Act was not made for all establishments. There are various rules set by the EPFO. A company that fulfills all the criteria and follows the rules is eligible to register for the EPF Act. The company gets many advantages after registering for the EPF Act. These benefits are discussed below:
Eligibility Criteria Of Establishment Or Companies Under EPF
There are specific criteria that the companies need to fulfill in order to register with the EPF act. The essential criteria are given below:
1. The first criteria for registering under the EPF Act is that a company needs more than 20 employees.
2. The company or industry should be at least 3 years old so as to register for the EPF scheme.
If the company fulfills the above criteria, then it can register for the EPF Act. These rules were designed for the safety of the employees.
*Any establishment having more than 20 employees working under its wings is liable to enroll its employees for EPF benefits. This is valid for all the employees who are employed in the establishment apart from the casual labors and apprentices. It is also crucial to note that even the contract labours are included under this scheme. Moreover, the employees who have a basic salary receipt up to Rs 15001 per month are covered in this Act. But note that the earlier norm mentioned must be satisfied first for this to be in place.
Registration Of Establishment For EPF Act
The company needs to follow a certain procedure while registering for the EPF Act. Firstly, the company should fulfill the above terms and conditions. If they fulfill the terms, then they need to visit the official website of the EPFO portal.
After opening the portal, one needs to click on the option “Establishment Registration.” After doing so, a new page would appear, where one needs to fill all the details.
The details required name, PAN, license, and other information about the company. After filling the details, the establishment will get registered in the EPF act. The employees of the company can open an EPF account by taking the permission of the employer.
Benefits Of Registering A Company In The EPF Act
Though it is well known that employees get lots of benefits due to the EPF act, what does the employer gets? The employer gets recognition from the government. Furthermore, the company gets tagged as an established company.
Employees look for a secure financial life. If a company registers under the EPF Act, then they are offering a financially secured life. If an employee gets an offer from such a company, then he/she would immediately take the offer. This increases the number of employees in the company. By registering with the EPFO, the employer is building trust between the employee and the company.
Apart from that, an employer gets several benefits from the government too. The employer gets to use the facilities of the EPF scheme digitally. The employees can now open their own EPF accounts from an online website. Even for the employer’s signature, one does not have to rush to the employer. Due to the digital signature system, the employee can send a request to the employer. After receiving the request, the employer sends a digital signature to the employee. Due to this process, it takes less time to open an EPF account. The EPFO has made it mandatory for companies with more the 20 employees to register under the EPF Act. This rule was made for the security of the life of the employees.
Can A Company Have A Separate Private PF Instead Of The EPF Scheme For Its Employees?
Various companies have their own private savings scheme instead of EPF. Such companies are known as exempted companies by the EPF. An organization can become an exempted company by providing a better savings scheme. This savings scheme is better than the EPF scheme in many ways.
Companies like Wipro, TCS, and other private institutions are known as exempted companies. These companies have their own savings scheme instead of EPF. An organization can become exempt by following the process stated by the government. A company has to provide the government with the details of the savings scheme. This particular savings scheme should be better than the EPF Act. The government will verify the details and then make a decision.
After the government verifies the details, the organization is declared as an exempted organization. This company now has its own PF scheme for its employees.
Benefits Provided By Private Companies In PF Account
There are certain benefits that a private PF provides to its employees. These benefits are not found in the EPF Act.
One of the major benefits which an employee gets from private PF is higher interest rates. The EPF scheme provides only 8% interest rates to the employees. Whereas a private PF scheme offers interest rates as low as 8.65%. The interest rates change every year as per the wish of the organization. Higher interest rates mean higher returns, which will be beneficial for the employee. Higher interest rates will help the employee in getting a better pension amount at the time of retirement.
However, the rules to withdraw money from a private PF trust are quite the same as those from the EPF scheme. The employee needs to attain the age of 54 to withdraw the amount from the account. If a person switches from a private company to a registered company, then he/she can transfer the money to the EPF. For transferring the money from a private savings account to the EPF account, you need to fill the form. After filling out the required forms, the money is then transferred to the EPF account.
Benefits Of EPF Account
This does not mean that the EPF scheme does not have any benefits. There are certain benefits that an employee, having an EPF account, can avail. People who have EPF accounts can manage their accounts from the online website. The employees can even check the PF status from the online website.
One of the most important benefits that the EPF act has for the employees is that if an employee works in an organization for more than 5 years, then his/her EPF account will be free from taxes. It means that the amount which the employee will receive at the time of retirement will be free from taxes. Moreover, EPF even has the scheme of providing advances to the employees. Advances are similar to a loan, except, here, one does not have to pay back the amount.
In case of emergencies, one can withdraw money from the EPF account. Situations like medical needs and many more are considered emergencies. The money given withdrawn during this time is known as advances. These advances are free from any interest, and one does not have to return it. In short, EPF even acts as an emergency savior for an employee.
Similarities Between EPF & Private PF Trust
There are certain similarities than one can get between the EPF scheme and the Private PF trust. Both schemes are designed to encourage employees to save money for a better future. Both are saving schemes which have certain rules and benefits.
In both cases, the employee, as well as the employer, has to contribute to the savings account of the employee. Each of the parties needs to contribute 12% of their monthly salary into the account. Moreover, the employee can even contribute more amount the EPF account.
In both the saving schemes, the employee can withdraw money from the EPF account at the age of 54. No employee can withdraw money before the assigned age. This rule was made to discourage any kind of premature withdrawals.
Another similarity that one can find in both the schemes is the case of unemployment. If an employee remains unemployed for a month, then he/she can withdraw 75% of the money from the savings account. If an employee remains unemployed for more than 2 months, then he/she can withdraw the whole amount from EPF. An employee can even transfer the savings amount from t previous account to a new one. In such cases, the savings account will be considered as a continued account. This rule was made so that the employee would not have to pay any taxes for the savings amount.
Frequently Asked Questions
1. Why do private companies have their separate PF schemes and not EPF schemes?
Private companies offer private savings scheme as these schemes have better benefits. Unlike EPF Act, the private savings scheme have higher interest rates. Due to such benefits the employees would go for private companies.
2. Can I transfer my private PF savings balance to my EPF account?
Yes, you can transfer the amount from the savings account of a private company to the EPF account. For doing so, you have to fill out certain forms and the amount will be transferred.
3. Will a person be considered as employed if he/she leaves job and becomes self employed?
No, the person is not considered as employed if they leave their job and start any kind of business. The individual can withdraw money from his/her EPF account within 2 months of self employment.
4. Why does EPF Act discourage premature withdrawals?
The reason why EPFO discourages any kind of premature withdrawals is that, it wants the employees to save money. Before the age of 54, no employee can withdraw the money from the EPF account. If a person withdraws certain amount at the age of 54, then he/she will only get the remaining amount at retirement.
5. How can one check whether a company is eligible for registering under the EPF act?
A company which has more than 20 employees and has been in the market for 3 years, can register for the EPF Act.
6. How to know whether a company is exempted from EPFO?
For knowing whether an establishment is an exempted one or not, one has to visit the EPFO portal. After that, one has to type the establishment name in the “Establishment Search.” In this section all the details of the company can be viewed easily.
7. Can a start-up opt for being an exempted company?
A start-up cannot opt for being an exempted company. Only a company which is more than 3 years old in the market is eligible to either register under the EPF Act. Such companies can even become exempted companies.
Though both the savings scheme are different, they have similarities. The aim of these schemes is to provide the employees with a safe future after retirement. Most of the companies have shifted to the private savings scheme. They have done this to provide their employees with better retirement plans. There are various pension schemes, too, which come along with the savings scheme. These schemes provide the employee with a monthly pension even after retirement.