4/5/2019 India revises requirements for International Worker status for Indian employees - EY - Global

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HR and tax alert | July 2017

India revises requirements for International Worker status for
Indian employees

Executive summary
On 23 June 2017, the Employees’ Provident Fund Organisation (EPFO) issued a revised circular clarifying its
position on the definition of International Worker status for Indian employees. The circular states that Indian
employees who return to work in India, after having worked in another country with which India has a social
security agreement, will not be considered as International Workers for Provident Fund purposes.

International Workers are subject to mandatory Provident Fund contributions on their full salary without any
ceiling limit and a higher allocation of contributions towards the Pension Scheme (if they became a member of
the Provident Fund before 01 September 2014).

It is not known whether the circular applies retrospectively or from the date of issue but employers should
review the Provident Fund returns and update/amend the status of Indian outbound employees previously
reported as International Workers who would now be considered as domestic workers.

Background
An International Worker is defined as follows:

A foreign national working in India for an employer registered under the Indian Provident Fund;

An Indian employee who has worked or is going to work in a country with which India has a social security
agreement and being eligible to obtain the benefits under the social security programme of that country under
the social security agreement.

An Indian employee working in a country which has a social security agreement with India and who obtains a
certificate of coverage from the EPFO is generally exempted from contributing towards the social security
programme of that country. Therefore such an individual will not be regarded as an International Worker.

However, if such an individual does not obtain a certificate of coverage they will contribute to the social security
programme of the other country and may become eligible for benefits from that. Under an earlier interpretation,
such an Indian employee was considered as an International Worker after returning to India from their overseas
assignment.

An Indian employee who works in a country which does not have a social security agreement with India will not
be treated as an International Worker. Such individuals have always been considered domestic workers.

An International Worker who is an existing member of the Provident Fund is subject to:

Contributions towards the Provident Fund on their full salary without any ceiling limit; and

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4/5/2019 India revises requirements for International Worker status for Indian employees - EY - Global

A higher allocation of contributions towards the Pension Scheme (if they became a member of the Provident
Fund before 01 September 2014).

An International Worker who is not an existing member of the Provident Fund was previously required to
become a member of the Provident Fund on their return to work in India and subject to the rules above for
International Workers.

Impact of the latest circular

The latest circular issued by the EPFO dated 23 June 2017 (replacing the circular issued on 8 June 2017)
states that an Indian employee who qualifies as an International Worker and returns to work in India will be
deemed to be an employee and not an International Worker. Therefore such an individual will be considered to
be a domestic worker on their return to India.

According to a previous circular dated 20 January 2016 issued by the EPFO:

Provident Fund contributions are required where the salary is either paid or payable by the Indian employer.

If salary is neither paid nor payable out of the books of the Indian employer, then Provident Fund
contributions are not required.

Reviewing both the circular dated 23 June 2017 and the circular dated 20 January 2016, an Indian outbound
employee, who has worked in a country with which India has a social security agreement, will not be considered
as an International Worker on returning to India from an assignment if they meet the following conditions:

They were on the payroll of the host employer while on assignment;

They did not contribute to the Indian Provident Fund scheme while on assignment;

They did not obtain a certificate of coverage from the EPFO; and

They contributed to social security scheme of the host country and are eligible for benefits from that scheme.

Also, no Provident Fund contributions are payable in India when the employee is on assignment if there is no
salary paid or payable by the Indian entity.

Next steps
The latest circular from the EPFO may impact how organisations plan for India outbound assignments to
countries with which India has entered into social security agreement.

The circular might bring relief to Indian outbound employees sent on assignment to a country with which India
has a social security agreement without continuing coverage under the Indian Provident Fund scheme. Such
Indian outbound employees will now not be considered as International Workers on return to India.

It is essential that employers with Indian outbound employees to countries with which India has a social security
agreement:

Review the status of Provident Fund compliance in respect of India outbound employees.

Review the Provident Fund returns and update/amend the status of India outbound employees previously
reported as International Workers who would now be considered as domestic workers.

Review the terms of assignment which apply for India outbound employees.

It remains to be confirmed whether the latest circular will apply retrospectively or only from the date of issue.
EYG no. 04081-173Gbl

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