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Govt mandates EPF for foreign workers

Govt mandates EPF for foreign workers

New Delhi: The labour ministry has made it mandatory for international workers — both Indians working outside the country and non-Indian citizens working here — to contribute 12% of their salary (matched by an equal amount from the employer) to the Employees’ Provident Fund Organisation (EPFO), irrespective of the contributions they may be making to such schemes in other countries.

This new rule, which applies to all countries, would immediately and adversely affect employees of those countries that have so far not signed so-called SSAs (social security agreements) with India, such as the US. The agreements are also called totalization agreements.

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Effective 1 October, international workers will be able to export, or transfer back, their contributions only to countries with which India has signed SSAs, essentially Belgium and France so far. It is signing an agreement with Germany on Wednesday.

Indians working in the US contribute to the American social security system, but can’t automatically take the money back to India when they return. The government estimates that around 80,000 employees from India, mostly working in technology companies and projects in the US, contribute at least $1.5 billion (Rs7,200 crore) annually to the US social security system. Most of them are on short-term work visas.

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India, on the other hand, had so far not placed any restrictions on foreigners taking any contributions back to their home country when they leave, irrespective of how long they have worked here. Also, until now, foreign citizens in India as well as Indian citizens working overseas didn’t have to contribute to India’s EPFO if they were contributing to such funds elsewhere.

Meanwhile, within India, it is mandatory for all Indian workers and their employers in the organized sector, estimated to be about 40 million, to pitch in with a combined 24% of salary to EPFO.

India has been looking at entering into such totalization agreements with several countries that have a sizeable presence of Indians working there. But Indian officials claim that the US, for one, has been raising concerns about India’s lack of social security schemes as well as questions about the lack of any regular social security payments to citizens in India.

However, India has countered this by arguing that there are so-called provident funds as well as pension funds, special schemes for senior citizens and handicapped in the country, much like in the US.

“We also said only one scheme we do not have and they have is the security programme for unemployed. We point out that our system does not appreciate paying for those who are not working, and that we have introduced programmes like the National Rural Employment Guarantee Act that makes jobs a legal right," said a labour ministry official, who didn’t want to be named.

With its latest move, India is forcing the issue by raising the financial burden on both individuals and companies alike, even though some Indian companies that hire Indians in the US could be significantly impacted if they have to also pay into EPFO.

Major Indian software companies, such as Tata Consultancy Services Ltd, said they were already making social security provisions in India for employees sent to the US on short-term projects even as those employees paid into the US social security system, according to a company spokesman.

Mint couldn’t immediately ascertain how other Indian companies that have hundreds of Indian workers in the US will be impacted.

“With the new amendment, both the posted worker of a country, which does not have an SSA with India, as well as the employer may be forced to contribute to a scheme without entitlement for any benefit. Due to higher deductions, there will be lesser savings and hence lesser repatriation of surplus for such countries," said G. Gurucharan, joint secretary (international migration policy and financial services) in the ministry of overseas Indian affairs, which has been negotiating SSAs with foreign countries. “Indian social security system is now in alignment with international social security norms."

“This move will force countries like the US, from where a lot of short-term workers — especially in the knowledge sector — come to India, to sign a social security agreement with us," claims a senior labour ministry official, who didn’t want to be named.

“Because the repatriation of the benefits, including the exportability and transfer of the funds, will be on the basis of reciprocity, those countries, which have so far refused to sign the pact with India, will now have to review their stance as the move would pinch them," he added.

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