International workers come home to greater clarity

In 2008, the Government of India introduced the concept of International Workers, who were mandatorily required to contribute to the Indian Provident Fund and they included:

Foreign nationals working in India for an establishment covered under the PF regulation; and

Indian passport holders going abroad to work in a country with which India has a Social Security Agreement, and were eligible for the benefits under the social security programme of that country.

In 2011, PF authorities issued certain clarifications.

One of these states that an Indian employee attains the International Worker status on taking up employment in a country with which India has an SSA, and would retain that status as long as he obtains benefits under the SSA even if he returned to India.

Hence, Indian employees were reluctant to travel to countries such as Belgium, Germany and so on even for short duration, as they were subject to the following stringent contribution and withdrawal norms applicable to IWs:

The employee could withdraw the accumulated balance in his/her PF account only after reaching 58 years;

The employer would need to contribute a higher amount to the Pension Fund every month (that is, 8.33 per cent of the total pay).

Various representations were made to the Government regarding these issues. Recently, the Government issued a circular narrowing the definition of IW, and thereby resolving the issues.

Accordingly, Indian employees going to a country with which India has an SSA would be categorised as an International Worker only if they are eligible for benefits under the SSA, and contribute to the social security programme of that country.

Hence, if an employee gets a Certificate of Coverage from India, he/she would not be categorised an IW, provided he/she contributes to the Indian PF.

Following the amendment, the employee can now:

withdraw older PF contribution (before migration from India or on termination of service);

contribute only 8.33 per cent of Rs 6,500 per month to the Pension Fund.

This has brought great relief to employers who want to send employees to countries with which India has an SSA.

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As mentioned, IWs working in India are not eligible to withdraw the accumulated balance in their PF account until the age of 58.

Further, their PF accounts were being re-designated as “inoperative” three years after completion of their assignment. Accordingly, they were not eligible to earn interest on the balance in their inoperative account until withdrawal.

It has now been clarified that the concept of inoperative accounts will not apply to IWs — so they will continue to earn interest until withdrawal.

The PF for IWs is required to be contributed based on the “monthly pay”, which is defined to include basic wages, dearness allowance, retaining allowance, and cash value of food concession. In India, domestic workers contribute to PF only on these components. However, for International Workers, the PF authorities were attempting to levy PF on all the components of salary paid.

Now, it has been clarified that the components of salary for computing PF for IWs would be the same as those used for domestic workers.

The above clarification will result in substantial savings for employers, as in the case of IWs they generally bear the brunt of the contribution.

Homi Mistry is Partner and Niji Arora is Manager, Deloitte Haskins & Sells.

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