A CASE ANALYSIS ON EPF BOONE OR BANE

PREPARED AND SUBMITTED BY

SEC B | GORUP 4
1. UH19081 Caroline Sequeira
2. UH19082 Debasis Padhi
3. UH19083 Diksha Khanna
4. UH19084 Duttatreya Mishra
5. UH19085 Gargee Mallick

Submitted for the partial fulfilment of Course of Labour

Legislation -3 MBA (HRM)
To
Dr. Niharika Gaan
Contents
INTRODUCTION TO EPF ............................................................................................................................. 2
SYNOPSIS ........................................................................................................................................................ 3
DILEMMA........................................................................................................................................................ 7
PROBABLE SOLUTIONS .............................................................................................................................. 8
BEST ALTERNATIVE .................................................................................................................................11
 INTRODUCTION TO EPF
The Employees' Provident Fund came started with the promulgation of the Employees' Provident
Funds Ordinance on the 15th November 1951. It was then replaced by the Employees' Provident
Funds Act, 1952. It was introduced to provide for the institution of provident funds for employees in
factories and other establishments. The Act is now referred as the Employees' Provident Funds &
Miscellaneous Provisions Act, 1952 which extends to the whole of Indian except Jammu and
Kashmir.

An employee provident fund is created through the contributions made by an employee and employer.
Under EPF scheme, both the employee and the employer have to make certain contributions every
month towards the EPF scheme. You as an employee will get this money at the time of your retirement
or if you discontinue working either temporarily or permanently due to any kind of disability.

EPF states that an organization (irrespective of its structure) having 20 or more permanent employees
(across different departments and branches whether located in the same location or otherwise),
working in any of 180 plus industries, should mandatorily register with the EPFO.

The Act and Schemes framed there under are administered by a tri-partite Board known as the Central
Board of Trustees, Employees' Provident Fund, consisting of representatives of Government (Both
Central and State), Employers, and Employees.

Currently, the following three schemes are in operation under the EPF Act of 1952, and it is into these
trusts that your monthly contributions go:

• Employees’ Provident Fund Scheme (EPF) (1952)

• Employees’ Deposit Linked Insurance Scheme (EDLI) (1976)

• Employees’ Pension Scheme (EPS) (1995)

 SYNOPSIS
The case revolved around 2 major key players and a dilemma which makes the case an interesting
one to analyse.

Stake Holders

1. Aparajitha Corporate Services

Aparajitha Corporate Services Private Limited is one of the market leaders in the field of
Knowledge process outsourcing company and guiding HR Compliance Services. Being a market
leader and national player in this domain, they have expertise in the labour legislation authorized
by the central government as well as various state governments (including the union territories)
and its associations, discrepancies and procedural nuances.
The beliefs of the company are so as, that complying with governing provisions should be
business-enhancing and not business hindering. By producing made-to-measure compliance
methods for their clients that account for the individual iterations of the firm relating to size,
strategy, structure, geography, and business practices, Aparajitha is effective to formulate and
maintain cost-effective business and regulatory programs that will endure the scrutiny of
regulators, auditors, and investors.
In this case, one of the key characters is Mr. Mathivanan (Mathi), the Assistant General Manager
at Aparajitha Corporate Services Limited. He was recognized as the principal leader on all
perspectives related to Employee Provident Fund Schemes. He was the person who was at a
dilemma of which decision to provide and what will be its impact on the client.

2. Client- Retail Comapny

The boom in the retail sector in India and its analogous inflorescence in demand for talent has
emphasized the requirement for efficient hour systems. The performance of human resources has
specific importance in retail because the staff engages in an extremely unique environment. We
all understand obtaining good quality people is troublesome, but having to do so on inadequate
notice and just before your most intrusive (and probably most important) time of the year adds an
extra coat of complexity. Notably because Retail employees interact directly with the customers.
But attaining the right (seasonal) candidates is not the exclusive issue in the Retail Industry have
to deal with. There are several challenges encountered in the retail industry which renders and
significant dimension to the case.
Challenges faced in the Retail Sector

1. Government Norms Regarding FDI

As per the prevalent government norms preventing foreign direct investment (FDI) in the retail
sector in India, many multinational retail companies were not allowed to establish their own retail
operations in India Many such organizations operated franchisee-owned operations for their
exclusive brand outlets. For large format stores (Lifestyle, Shoppers Stop, Central etc ),
employees manning the brand counters were employed through contract agencies, which charged
a service charge to keep these franchise of a large multinational retail company.Thus the expenses
are high to manage the human capital as it consit of both the employees salary and the service
charge of the contract agencies.

2. Seasonal Demand

During the festival, there are always rush on retail stores.so employee demands are more and
workforce needed to be more organised during this time to handle this volume of customers.
Thus, attrition issue needs to be deal carefully to have trained workforce to match the seasonal
demand.

3. Threat of Poaching

In organized as well as an unorganized retail industry Employee poaching is quite crucial. Skilled
manpower is scarce in this industry and as such attracting the employees of competitors by
offering them better salaries is a rather easy option. Even if there is a Rs.100 increment the
employees will prefer to switch the organization they are working making a huge impact on the
economy due to a minor change in the pay structure. The capital expenditure for the training
and development is high so the loss is quite more in case the employee leaves the organization.
So, it became necessary important to retain good employee as they are assets of the organisation.

4. Lack of Career Advancement

A lot of workers within the retail trade even don’t recognize the trail for growth in their
careers. Proper goal management and coaching square measure needed so they'll grow and their
growth will facilitate the organisation to grow, Goal completion rewards square measure one
amongst the initiatives which will be done by the organisation. Some coaching like correct
 communication categories, temperament development categories, Packing Techniques, Technical
coaching square measure few of the items organisation might adopt for growth.

The Issue Timeline

Aug 201,Govt. makes

changes in the
minimum ceiling level Raised an issue with the new changes
for EPF with a dilemia of why we should
increase the CTC Rather than lets
deduct the amount from employee
salary and let them take less take
home salary

The MD of the Retail Firm

Dropped a mail to aparajitha
corporate services highlighting
the issue

THE EMAIL

When the cost to company (CTC) has been contractually agreed with
the employee, why should the change in the EPFS regulation requiring
increased contribution to PF (and hence lower take home salary) now
require us to increase our overall CTC payout?

After all, if tax laws should change to favor the employee, we would not
reduce the CTC to match the net take-home pay but allow the employee
to benefit from the changed regulation

Raising the following Questions?

1. Should the organization increase in provident fund contribution should be recovered from the
salary, to preserve only the total gross cost to company that it had promised the employee through
its contractual letter of employment?
2. What can be done to tackle this situation and what changes needs to be done.

In every decision it is necessary to take into the consideration of both the perspective whether it is the
Organization or the employees working in it. Now let’s look at the organization perspective in this
matter.
ORGANIZATIONAL CONTEXT

SUPPORTING THE CHANGE

➢ If changes is not made it will impact the Employee-Employer relationship making employee
have a perception that the organization is not employee friendly and any changes in future
will be having adverse impact on them thus can cause high attrition and it needs to avoided.

➢ Sales team pushing for safeguarding the net salary as even a small Rs.100 changes can lead
to higher attrition

➢ Higher attrition forecasting just before peak festival seasons if the changes is implemented
causing loss of revenue.

➢ The estimated attrition cost would be far higher than the cost incurred in the incremental salary
difference incurred by reimbursing pay and safeguarding the net take-home salary. The
expected cost impact for the organization (see Exhibit 6) however, had not been provisioned
in the payroll budget, and for the current year, would have a marginal increase in the budgeted
costs. This increased cost would have to be provisioned for as an additional cost in the
subsequent year. the difference in net

AGAINST THE CHANGE

➢ Employee should bear the extra contribution accept less take home salary since they have
already agreed on a contract and why employer should cost additional cost since they are also
paying salary and contract agencies fees.

➢ If the tax regulations had changed, the burden or benefit of these regulations was never
covered by the companies and always borne by the employee. How was this situation
precipitated by a change in the EPFS regulatory compliance any different?
 DILEMMA
The case basically talks about the employees who are in the low grade and probably not that educated.
So, for them it's difficult to comprehend the schemes and understand its complexities. The ones who
are in the higher position are aware about the complexities of the scheme and if they have any
confusion, the HR of the organization is always there to guide them and help them facilitate the
transfer & management of their PF. This understanding did not percolate down to the low income &
less educated workforce, they are generally less aware about the schemes. For example: one can
redeem the PF balance if he has been unemployed or employed where the PF act is not applicable,
then he can redeem his PF within 2 months from his exit from the previous organization.

Also, not all people understand the implications of the EPF, they see it as something which was long
term. According to the act, an employee has to complete at least 10 years of service and should attain
the age of 58 years to avail full pension & 50 years to attain reduced rate of pension. Due to lack of
awareness, they were only concerned about the in-hand salary which was net after all statutory
deductions including their contributions to EPF and not the letter salary which was cost to company.
Also, the employees did not have the choice to opt out from the scheme even if they wanted to have
greater pay in hand and were not really keen to save for the future.

Mathi assessed that the finance costs in the organization from which he got the email were likely 30%
of the total costs which was about 15% of the general incomes. Contingent upon how the association
decided to retain the worker and commitments, the extra money related weight of the organization
could run into a huge number of rupees. As a base, organizations were required to keep up the gross
pay rates of the workers and increment the organization commitment to coordinate the expansion in
representative commitment. This would likewise prompt an expanded unexpected weight on their pay
costs.

Then again, given the affectability of the work power to a decrease in their net salary, numerous
organizations were discussing whether to assimilate the whole money related weight of agreeing to
the adjustment in guideline while keeping up the salary of the worker. This would include an
expansion in net compensation to cover for the expanded representative commitment, and, as over,
the need to coordinate the worker commitment by the business. The money related weight on the
organization in such an occasion could be extremely noteworthy. Obviously, there were choices in
the middle of these two parts of the bargains. Conclusion and practice among the retail organizations
was plainly partitioned.
 PROBABLE SOLUTIONS
The probable solutions are as follows:

1. Keeping the CTC constant

2. Keeping the net salary constant
3. Keeping the gross salary constant

It is important to consider the industry and the challenges it faces so as to fully analyse the implications of
each of the solutions.

The company in question belongs to the retail sector. The retail industry has seen a major transformation in
the past two decades, with privatization, the rise in shopping malls and ecommerce and online shopping. The
nature needs and expectations of the consumer has also changed drastically and retail companies have to keep
up with seasonal trends as well as the shopping behaviour of their demographic. Brand loyalty is also declining
with the wide array of options and accessibility of brands. Retail is also one of the industries with the highest
employee turnover rates. The attrition rate in the retail industry is about 30-35%. The replacement of the
employees requires a lot of costs as well as time and energy. The solution to this problem of a high turnover is
to increase employee engagement.

As per government regulations, Foreign Direct investments (FDI) was prevented in India, and hence, many
multinational companies operated Franchisee – owned companies for their brand. Therefore, most of their
employees were employed through contract agencies. Thus, the companies were the principal employers and
hence bore a heavy service charge along with the salary costs of the employees. Due to the large size of the
workforce, this cost was very high and formed a major chunk of the overall costs of the company.

The implications of the solutions can be asserted as follows:

1. Keeping the CTC constant:

According to the employer, since the service contract with the employee was based on a fixed CTC,
keeping the CTC constant can be an alternative that the employer should be allowed to opt for, especially
because the change in EPF limited benefitted the employee in the long run. Therefore, in the employer’s
opinion, the employee should bear the burden of a higher EPF contribution and as a consequence, humbly
accept the lower take-home salary. However, since the company belongs to the retail sector, this alternative
could have adverse implications.

According to Exhibit 4, the take-home salary for an employee with the basic pay of ₹ 6500 would change
from ₹22445 to ₹ 20405. This would mean a decrease of ₹ 2040, which is about 10 percent of his net
income. Employees in this pay grade would mostly be in the lower income category. This decrease of ₹
2040 would be a big blow to the employee and his family, for which he/she could be the sole bread earner.
A family that lives on a hand-to-mouth existence would not be able to manage its expenses. This would
cause major dissatisfaction among the workers in the company. The attrition rate would definitely increase,
and it would not be considered as an employee friendly company. Some extreme implications could
include protests from their unions as well as strikes and destruction, if not handled carefully. These may
seem a bit farfetched, but their possibility can’t be ignored, as there have been instances like these in the
past. Therefore, though this alternative would cost nothing to the company by means of payment to the
employee, it could have long term implications, which would cost the company a lot more.

2. Keeping the Net Salary constant:

The sales team of this retail organisation was pushing for this alternative to be the solution opted for by
the company. Because of the nature of the workforce that would be affected by this change in EPF
regulation, the sales team supports the safeguarding of their net income. This is because the affected
workforce is extremely sensitive to even small changes their net pay. The National Retail Sales head is of
the opinion that the workforce in consideration consists of employees who changes his job for an increment
of only ₹ 100 per month. Therefore, not keeping the net pay constant may cause a higher than the usual
attrition of a good sales force, especially affecting the turnover at peak festival seasons, in October to
December.

Keeping the net pay constant may cost absolutely nothing to the employee but cost a lot to the company.
Exhibit 6 shows that keeping the net pay constant could cost the company an additional ₹ 675187 for
contract employees and ₹ 2882064 for the other staff on contract rolls. This is a major cost to the company,
considering that the payroll costs were already about 30% of the total costs.

But the HR head of the organisation had learnt from his peers that many companies had chosen this
alternative and absorbed this difference in net pay as well as their increased contribution. This would mean
that the attrition rate was guaranteed to be higher if the company wouldn’t follow suit. The cost that the
company would then have to bear would be a lot higher than the estimated cost to keep the net constant.
However, the managing director did not agree with him and did not even consider this as an option if there
were more cost effective and legal ways to deal with this problem.

3. Keeping the Gross salary Constant:

Keeping the CTC constant and the net pay constant were the two extreme ends of the conundrum and this
alternative of keeping the gross salary constant seemed to be the meeting point of the two extremities. This
 was considered as the minimum that the company was required to do to retain its employees. For this
solution, the company would have to maintain the gross salaries of the employees and increase the
company contribution to match the employee contribution. This would increase the wage costs to an extent
but would not be as much as the cost of keeping the net pay constant. Exhibit 6 shows that keeping the
gross pay constant could cost the company an additional ₹ 295368 for contract employees and ₹ 1359096
for the other staff on contract rolls. This is significantly less than the costs for maintaining the net pay.

The employee would also have a decreased take-home salary, but the decrease would be less than if the
CTC was maintained. According to Exhibit 4, the take-home salary for an employee with the basic pay of
₹ 6500 would change from ₹22445 to ₹ 21425 if the gross salary was. This would mean a decrease of ₹
1020, which is half the cost of ₹ 2040 that the employee would have to bear if the CTC was constant.

Thus, both the employee and employer would assume responsibility and share the costs. But considering
the sensitivity of the workforce to even a slight reduction in their net pay, this option is still not considered
the ideal solution.

Therefore, a summary of the costs to be borne by the employer and the employee for all the three options can
be denoted as follows:

Note: The employee considered has a present basic pay of ₹ 6500, gross pay of ₹ 23225 and net income of ₹
22445.

Total Costs borne by If CTC is kept If Gross salary is kept If Net Salary is Kept
Constant (In INR) Constant (In INR) Constant (In INR)
Employer 0 16,54,464 35,57,251
Employee 2040 1020 0

Thus, to decide on the best possible solution, a thorough analysis of the turnover costs as well as the future
tangible and intangible costs to the company need to be analysed.
 BEST ALTERNATIVE
From the probable solutions that have been mentioned above, we need to consider the following
factors:

1. High Attrition Rate

The case that has been provided to us deals with the retail industry, the attrition rate in such time of
industry is nearly 30-35%, and people leave the sector for a mere 100 rupees as well. The Employer
must consider this fact before taking any step.

2. Benefits offered by EPF

EPF offers a bunch of benefits to the employees, some of which are

1) Post death benefits

2) Insurance Benefits

3) Tax Saving

4) Pension Benefit
5) Withdrawal benefits

Most of the employees are not even aware of these benefits, for the lower level employees they see
the amount of cash that receive in hand rather than what they will be saving for the future.

3. Profit of the Industry

The retail industry has a small percentage of profit, but as the sale is in large volumes the amount of
money that they receive is quite large.

4. Employee Morale

Before taking any step, the Company must look into impact that the step will have on the morale of
the employee will they be happy with it or not.

Now, the question comes what among the probable solutions is the best one, should the employer
think about the employees and keep their salary constant or should think about the revenue impact
that it would have and keep the CTC intact.

According to us, the employer should think about the employees and keep their salary intact because
of the following reasons:
1. Other companies have already kept the in-hand salary constant.

2. Reduce the attrition rate, by paying employees at par with the industry standard

3. As per research, happy employees increase the productivity of the company by almost 40%
so the amount that is being paid extra can be easily managed.

4. And if we do a Cost Benefit analysis, the amount of money that the organization needs to
spend on re- hiring will be reduced by a very huge amount.

5. Apart from this the employer must ensure that the employees are well aware of the benefits
that are being offered by the EPF.

6. The organization must also smooth the process of EPF withdrawal and Transfer so the
employees can reap the benefits of the EPF.