The circular is important because EPFO was asking employers to seed the Universal Account Number (UAN) of the employees with Aadhaar. UAN was launched in 2014 with the idea that every employee under the EPF will have only one account number which will be portable from one employer to another and the employee could ultimately de-link herself from the employer.
Being an online facility, the framework of UAN rests on watertight KYC and Aadhaar emerged as the ultimate answer. “Aadhaar is the most efficient way to identify a person for online transactions and hence EPFO made Aadhaar mandatory to meet its objective of one member one EPF account. In fact, some PF offices have made efforts to enforce seeding of Aadhaar with every UAN," said Sonu Iyer, partner, people advisory services leader, EY.
PF authorities could insist for Aadhaar because in a circular, dated 22 June 2015, EPFO directed employers to seed the Aadhaar number—where the employee had the number—within one month of the employees getting their UAN. The circular also stated that failure to comply would invite action. Further, last year, the EPFO updated its systems to ensure that new employees got UAN only when it was seeded with Aadhaar. “In September 2017, we mandated UAN to be seeded with Aadhaar. This was primarily to avoid duplication of UAN as previously employers were generating a new UAN altogether for the new employee instead of asking for the old UAN. This was defeating the very purpose of UAN which is supposed to act as a link for PF accounts created under different employers," said a senior EPF official, who didn’t want to be named.
Employers were getting penalised for failing to link Aadhaar with UAN. “Last year EPFO updated its software to generate UAN for the new employee only if the employee provided Aadhaar. Otherwise, the UAN wouldn’t generate and the employers were being heavily penalised. Apart from charging 12% as penal interest per annum, an additional penalty ranging between 6% and 24% was also being levied depending on the duration," said Rituparna Chakraborty, co-founder and executive vice-president, TeamLease Services Ltd.
But with the new circular in place, the employers now have a breather as penalties no longer loom over their heads. In fact, experts we spoke to said that the circular implies that Aadhaar can’t be made mandatory by the EPFO. “The way the circular is worded it means that employers who are not able to seed Aadhaar with the UAN of their employees will not be penalised, but it also implies that Aadhaar is not mandatory. We are hoping for further clarity by the EPFO on this, as the court ruling and the circular by EPFO point to the fact that Aadhaar can’t be made mandatory," added Chakraborty.
The employers can heave a sigh of relief but for employees, the answer is bit more nuanced.
The EPFO official we spoke to said Aadhaar can be made mandatory for EPF members receiving government benefits either in the form of a pension scheme or under the Pradhan Mantri Rojgar Protsahan Yojana (PMRPY).
The EPFO official said the understanding in the organisation is where a benefit is being paid by the government and the money is going from the consolidated fund of India, Aadhaar can be made mandatory. “A part of the Employees’ Pension Scheme or EPS (1.16% to be exact) under the EPFO is paid by the government and as such we can insist on Aadhaar for KYC purposes from PF subscribers," said the official. This excludes employees who entered the workforce and came under EPF after 1 September 2014 with a starting salary of more than ₹ 15,000 as EPS was discontinued for these employees.
But experts differ. “The court order is clear that Aadhaar can’t be made mandatory for pension. Further, the burden right now is on the employer to produce and seed Aadhaar which in light of the new judgment seems infeasible. EPFO should ask the employees directly," said Chakraborty.
Even employees who come under PMRPY will have to provide Aadhaar. Under PMRPY, for new employees earning less than ₹ 15,000 a month, the government will contribute the employer’s share as well as to EPS for three years. The scheme mandates Aadhaar and as per the EPFO official, it will continue to be mandatory.
This leaves employees who don’t come under EPS or PRMPY for whom Aadhaar is not mandatory. However, as things stand today, employees who choose to not give Aadhaar will have to bear a lot of inconvenience.
“To avail UAN-based online services like submission of various types of withdrawal claims online from anywhere around the world, seeding the UAN with Aadhaar will be mandatory. Online claims services have become very popular—the percentage of online claims of the total claims of EPFO has jumped from 26% in March 2018 to over 50.34% in September 2018," said the official.
What also makes Aadhaar a necessity is the generation of UAN. “The systems at the EPFO will need to get updated to de-link UAN from Aadhaar. Until then, new employees will have to give their Aadhaar to get UAN, or will have to contribute without UAN which is very inefficient as records don’t get updated on time and benefits such as payment on withdrawals will also suffer," said an executive from a global consulting company who didn’t wish to be named.
For cases where the employees can’t get a UAN, the employer can make remittance through a demand draft to the regional office. “The EPFO office will take such amounts into the system. The contribution will earn interest like any normal contribution and as and when the UAN gets generated the EPFO office will link up the returns to the payments already made," said the official.
According to Iyer, an offline ecosystem for EPF that doesn’t need Aadhaar exists. “In March this year EPFO allowed for EPF contributions even for those employees who didn’t have Aadhaar and consequently couldn’t get UAN. So it’s not as if you will be denied EPF contributions if you don’t have Aadhaar. Just that the online transactions are more convenient but for that Aadhaar is mandatory as of now at least," she added.
While Aadhaar may not be mandatory for you and you can continue to contribute even in the absence of it, experts say that tracking and updating records in the offline system is highly inefficient and if you are not new in the workplace then you will know the delays that EPFO has been infamous for. Aadhaar may not be mandatory in letter, in spirit (for the sake of your convenience) it’s a necessity.