International Workers
Legal Analysis and Practical Implementation
www.labourlawsinstitute.com
Agenda
•
Concept of International Workers
•
Inbound Perspective
•
Outbound Perspective
•
Social Security Agreements ( SSA)
•
Challenges – Outbounds and Inbounds
Impact on Foreign
Nationals Inbounds
LABOUR LAWS INSTITUTE
International Worker – Inbound
Foreign Nationals
•
Covered Establishment: Every establishment in India, employing 20 or more employees, is required to
register with concerned Employees’ Provident Fund Organisation ( social security authorities ) under
Section 1(3) of the Employees’ Provident Fund & Misc. Provisions Act, 1952 . If in case of less than 20
persons ( employees) can also register voluntarily under Section 1(3) of the Act,1952.
•
Since November 2008 – Concept of International Workers (IWs) was included in the ambit of EPF
and EPS which was amended in 2010 . ( Ref. Paragraph 83 of the Scheme, 1952 )
IWs - Inbounds
• Non Indian passport holders working with a covered establishment
•
Inbounds from SSA countries continuing home country contributions and having a certificate of
coverage excluded. ( COC or Ditachment Certificate )
•
Inbounds from Singapore exempt where the criteria under the Comprehensive
•
Economic Cooperation Agreement is met
•
Nepalese and Bhutanese Passport holders would deemed to be Indian Workers (and not International
Workers) under the Friendship Treaty (notification dt. 02 Nov 2016)
•
OCI and PIO card holders being non-Indian passport holders are not excluded - enhanced focus by
EPFO during inspections
1. What are the
implications in case
where Nepalese and
Bhutanese are treated
as IWs prior to the
notification?
2. Impact of past noncompliances for IWs –
interest (7-Q),
damages (14-B) etc.
International Worker (IW) – Foreign
nationals On local payroll
•
Form IW1 to be filed at the time of on-boarding indicating nationality and wage details of the foreign
national
•
Wage ceiling not applicable
•
Employer and employee contributions at 12% of Pay as defined under PF Act. Employee’s contribution
of 12% is entirely towards PF
• Increased exchange of
information between tax,
PF and immigration
authorities
•
Employer contribution of 8.33% of pay diverted to pension account (only 3.67% goes to PF)
• Inspection by PF
authorities
•
New joinees (effective 1 September 2014) are exempt from contribution to Employee Pension Scheme
provided the pay exceeds INR 15,000 per month – applicability of this provision to IWs?
• Information shared by
employees during
withdrawal
•
Pay means basic wages, dearness allowance (including cash value of food concession)and retention
allowance
•
Dispute with respect to determination of basic wages – focus on special allowance
• Circular issued in May 2013
providing guidelines to
Regional Provident Fund
Commissioners to secure
compliance regarding IWs
Impact on outbound
Indian nationals
LABOUR LAWS INSTITUTE
Outbound Indian Nationals – IW
An Indian national who has worked in a country with which India has an
effective social security agreement:
•
has contributed to the social security program of such country
•
is entitled to receive a benefit under the social security agreement.
•
excludes an employee who has obtained the certificate of coverage
IW tag – implications
• Wage ceiling not applicable
Example•
•
Mr. A is an Indian national locally hired in Belgium in 2014. He contributed
to social security in Belgium during his employment with Belgium company.
He moved back to India and started his employment with an Indian company
in 2016.
Mr. R an Indian national was on deputation to Canada in 2011 and worked
there for one year. He contributed to the social security in Canada during that
time. He is on deputation to Canada again from Nov 2016 and has obtained a
COC from India this time.
• Pay includes all components which are “universally,
necessarily and ordinarily paid to employees” – special
allowance?
• Employees who have contributed to the SS regime of an
SSA country prior to the effective date of the SSA
would also be considered as IW
International Worker (IW) – Outbounds
Guidelines based on January 20, 2016
circular issued by EPFO
The guideline broadly provides that If wages or salary are paid or payable out of the books of the Indian
establishment, PF contribution would be required
Employee travelling to
social security agreement
(SSA) country and COC has
been obtained
Employee travelling to SSA
country and COC has not
been obtained
Employee travelling to nonSSA country
•PF contribution to continue
and reporting compliance
should be same as what
was being reported
immediately prior to
deputation
•PF contribution would be
required only if any Indian
salary is payable or paid.
•PF contribution would be
required only if any Indian
salary is payable or paid.
•Employee to be governed
as per law of host country
•Employee to be governed
as per law of host country
•Since COC is availed,
contribution to social
security in host country is
not required in respect of
covered contribution
1. Position where Form
10 is not filed?
2. Contribution in case of
deputation to branches
of Indian
establishment
overseas where no
Indian salary is paid?
3. Can PF contributions
be continued in case
of a payroll transfer to
SSA country – can PF
for this purpose be
limited to Rs. 15,000?
Deputation Models
Model Type
Tax Implication
Social Security Implication
Payroll
Transfer- termination of
India
employment
India tax withholding may not
trigger
• Social security contribution is not required
since there is a full and final settlement in
India.
• Form 10 to be filed
Home country
• Tax withholding to continue on regular
payroll continued and
compensation paid to employee in India
benefits provided abroad • In case of resident and ordinarily resident
(ROR) employees, taxable benefits provided
abroad need to be considered for tax
withholding purposes
Payroll outside
In absence of any payment by
India but lien on
Indian entity, a position can be adopted that
employment continues
there is no withholding requirements in India.
in
India
In case of SSA country
• No scope to avail COC benefit
• Employee would qualify to be an IW upon
return to India
• Provident fund contributions to continue
through the monthly payroll process
In case of SSA country
• COC benefit could be availed
• No risk of being tagged as IW
In case of SSA country
COC can be availed provided contribution to
PF is made in India and reporting compliance
have to be same as was being reported
immediately prior to
deputation
Non-SSA country
Based on the circular if no Indian salary, there
is no requirement to contribute to PF in India.
1.
2.
Whether overseas
deputation period
considered for gratuity
purposes?
What is the salary
considered for
determining gratuity
benefit?
Impact in case of PF wages less than
INR 15,000
•
Wage Ceiling enhanced to INR 15,000 p.m. effective from 1 September 2014
•
EPFO approach on this
•
•
The total wages of employees are split by the employer to the extent that PF liability is reduced upto 50% of total
wages - Circular dated 6 August 2014
•
Under no circumstances shall the employer be permitted to segregate the CTC/salary into such components so as to
bring the amount (of wage) on which contributions is payable by him under section 6 of the Act, under - Circular No
34/2013-14 dated 24 March 2014
Implication to employers
•
Impact
onremains
special allowance
Definition
of Pay
the same for an international worker and a domestic worker
•
Impact on past contributions
Pay under the PF Act, 1952
•
Includes – Basic wages, dearness allowance , retention allowance & food concession .
•
Excludes – HRA, Overtime allowance, Bonus, commission and any other allowance of a similar nature
1
2
Hon’ble Supreme court in case of Manipal Academy , on the basis of principles laid down in Bridge & Roof , has held that
any allowance paid universally, necessarily and ordinarily to employees should be considered as basic wages and PF
would be applicable on the same
1
2 AIR 1963 SC 1474 ( Full Bench )
Electronic Challan Cum Return (ECR)
Version II – Changes in the new ECR
The most significant change is the inclusion of Gross wages in the new format.
•
A new field for gross wages has been added. Accordingly, in addition to the salary
considered for PF contributions, the gross wages as reported in the payslip need to be
reported going forward.
The member ID has been discarded and UAN will be the key field in the ECR.
•
Any ECR that the employer sends to the EPFO will now have to include the newly
generated UAN of the new member, or the linked UAN in case it has been already
been generated for the employee.
Possible challenges that could be triggered:
• Where the PF wages are less than Rs. 15,000 per month for domestic workers, the PF authorities
can now compare the gross wages and the PF wages and raise demands for the differential PF.
• Challenges where the gross wages is higher than the PF wages for in respect of International
Workers.
Form 11
•
IW tracking through Form 11 – revised form issued in September 2016
•
Following details are requested with respect to IW
•
Country of origin (India or other country)
•
Passport number
•
Passport validity period
Inoperative Account
•
Relaxation in the provisions of Inoperative accounts
•
Now applicable after a period of 3 years from cessation of employment
•
On retirement after attaining 55 years of age
•
On account of death
•
On migrating abroad permanently
• Para 69 specifically provides for withdrawal on
account of taking up employment abroad
• Form 10 does not provide for this option
• Challenge in case of payroll transfers where
full and final settlement is made
Social Security Agreements
LABOUR LAWS INSTITUTE
Status of Social Security Agreement s
(SSA)
SSA in Force
Country
Belgium
Germany
Switzerland
Denmark
Luxembourg
France
Korea
Netherlands
Hungary
Sweden
Finland
Czech Republic
Norway
Austria
Canada
Australia
Japan
SSA yet to be effective
Effective Date
September 1, 2009
1st October 2009
29th January 2011
1st May 2011
1st June 2011
1st July 2011
1st November 2011
1st December 2011
1st April 2013
1st August 2014
1st August 2014
1st September 2014
1st January 2015
1st July 2015
1st August 2015
1st January 2016
1st October 2016
www.labourlawsinstitute.com
Country
Portugal
Quebec
Germany
Concluded
Y
Y
Y
Signed
Effective
Y
Y
Y
India has a bilateral comprehensive economic agreement with
Singapore- this facilitate relief from dual contribution in both
countries.
Benefits available under the SSA
• Detachment
• Totalisation
• Export of benefits
• Certificate of Coverage (COC)
• Terms and Conditions for dealing Iws.
N
N
N
International Worker (IW) Challenges
Outbound Perspective
• Travel to SSA country prior to effective date of SSA resulting in IW tag - Once an IW,
always an IW
•
Process for totalisation benefit need to be specified
•
No uniformity in criteria for availing the benefit of detachment across SSAs.
•
Not all contributions in the host location are covered under the SSA IW tracking through
Form 11 and COC application
Inbound Perspective
• Total cost to company goes up where the employee is tax equalized
•
Challenge in monitoring the age of the expatriate employees for withdrawal purposes
•
Mandatory requirement to have an Indian bank account
•
Tracking the assignment period of employee in case of extension
www.labourlawsinstitute.com