Changing role of the employer in pensions
Factors such as increased employee attrition, the cost to company concept, employee awareness and inflation have meant that employees' outlook towards the EPF has undergone a transformation
It is a commonly accepted fact that employers in India lead a less than charmed existence. As if the trials and tribulations of running a business in India are not enough, they are often required to undertake tasks that are, elsewhere, commonly left to the government to fulfil.
Some generate their own power, others transport their employees to work and some others are also responsible for maintaining law and order among their employees.
For long, this has resulted in an inefficient business environment, where fewer resources are spent on strategy and execution, and more on non-core overheads. Maintaining compliances to labour laws fits this bill of non-core overheads, with provident fund (PF) compliances leading the parade.
So why does the employer get excessively involved in Employees’ Provident Fund Organisation (EPFO) compliances? The design of the regulation and its execution provides a hint. They hark back to an era when employee attrition was rare, geographical coverage of the EPFO was sparse, and infrastructure like banking and communications were underdeveloped. Further, socialistic leanings of the era turned compliance into an obsession. The assumption was that every employer was unscrupulous like the seth essayed in Bollywood movies of those years, and was out to usurp PF contributions and, hence, needed to be monitored.
Focus on efficiencies in benefits delivery was non-existent. It, therefore, made sense for the EPF to be anchored to the employer. This made employers responsible for actions like enrolment, contributions, record keeping, filings, employee communication and, inadvertently, benefits delivery.
Many of these assumptions have changed over time. Factors such as increased employee attrition, the cost to company (CTC) concept, employee awareness and inflation have meant that employees’ outlook towards the EPF has undergone a transformation. Going by various surveys, employee apathy towards EPF is ebbing. Nothing demonstrates the government’s realisation of this change better than the Universal Account Number (UAN) programme of the EPFO: a single EPF number programme, it is the Aadhaar of EPF, and was designed with the intention of simplifying portability and improving benefits delivery. It seeks to achieve this by anchoring EPF to the employee, instead of the employer.
Its predecessor (the EPFO’s Social Security Number (SSN) programme) was a disaster and had to be shelved, but the current avatar of the UAN is a game changer in the occupational-pensions space in India.
It is activated by combined action on part of the employer and employee. The first step requires enrolling the employee through a form that contains various details of the employee and her membership. The next step requires data validation and up loading the know-your-customer documents. The final act requires the employee to log in to the EPFO portal to activate the UAN.
While it is well-designed, its implementation method throws up two fundamental dichotomies that need focus and resolution. First, the dichotomy of converting an employer-anchored programme into an employee-anchored one, solely through employer intervention. Second, the dual and contradictory role of the EPFO: one of regulator, the other an administrator. I would like to focus on the former, as the latter has been much debated.
The EPFO has imparted compliance hues to UAN implementation by making employers responsible for most stages of implementation. Typical examples of difficult positions taken by the EPFO in this matter are: serving notices to employers when their employees do not activate UANs, and making current employers accountable for previous employer data corrections.
This strategy is myopic and suffers severe failings. One, it forces on employers the ownership of yet another non-core process and adds overheads to them. Two, it severely undermines the construct of an employee-anchored programme by making the implementation employer-centric. Simply put, UAN was supposed to simplify work for the employer. Instead, it has created additional load in the form of various HR processes.
It was also supposed to empower employees in matters such as transfers, but it has not. A combination of employer and employee apathy has resulted in absence of controls and generation of duplicate UANs.
Such actions defeat UAN’s purpose.
One potential solution is for the EPFO to commence outreach programmes directed at the employees, on forums provided by the employer. These could be done through third-party outfits that have the technology and the reach.
The volumes may be large and daunting but remember, many of us got our Aadhaar thanks to such employer platformed outreach programmes from third parties appointed by the Unique Identification Authority of India (UIDAI).
Such programmes minimise the dependence on employers while ensuring that employee awareness increases. The latter is a critical element in the long-term vision of a pensioned society.
The transformation that is underway in PF administration and delivery is a combination of several concurrent transformations, one of which is the role of the employer in pensions. With the delivery model becoming employee centric, employers should be responsible solely for compliance and providing forums for enrolment and employee education. Execution should be the role of administrators and the EPFO. Not recognising this will stunt the transformation and negate the objectives.
Amit Gopal is senior vice-president, India Life Capital Pvt. Ltd.
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Business NewsOpinionChanging role of the employer in pensions
First Published:10 Oct 2016, 04:21 PM IST
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