The Employees’ Pension Scheme (EPS), 1995, replaced the earlier Family Pension Scheme of 1971 and came into effect on 16 November 1995. It is administered by the Employees’ Provident Fund Organisation (EPFO) and is designed to provide a monthly pension after retirement, financial security for employees and their families, and benefits in cases of death and disability.
Contribution Structure:
There is no direct employee contribution towards EPS. Instead, the scheme is funded through the following sources:
- Employer Contribution- Out of the employer’s total 12% EPF contribution, 8.33% of the basic salary, which is capped at INR 15,000, goes into EPS.
- Central Government Contribution- 1.16% of the basic salary, which is again capped at INR 15,000.
Membership Eligibility and the 2014 Amendment
Employees' Provident Fund members who joined up to 31 August 2014 automatically became members of EPS, irrespective of their basic salary. This changed on 1 September 2014, according to which existing EPS members continued as members, employees with a basic salary below INR 15,000 continued to be automatically enrolled, while employees with a basic salary above INR 15,000 who were joining employment for the first time were not eligible for EPS membership.
What Issues Do Employers Face?
Employers face several practical issues in relation to the scheme, including:
- Employers are heavily reliant on Form 11 for employee declarations. This is the primary document through which EPS eligibility is determined at the point of joining.
- There is no independent mechanism for employers to verify EPS eligibility. However, it is worth noting that:
- EPFO has introduced a provision in the revamped Electronic Challan cum Return (ECR) to determine EPS membership, but it is not fully functional.
- Even when a member's EPS eligibility is shown as "Yes" in the portal, the EPFO system only validates eligibility based on the basic salary updated in the current establishment at the time of linking the Universal Account Number (UAN) to that establishment.
- The EPFO system does not validate the member's first employment or their eligibility status at the time of that first employment.
- For certain members, the EPS status has already been marked as "No" in the EPFO portal, but the reasons for this could not be verified.
- Where EPS is marked as "No", the EPFO portal does not allow EPS contribution even if the member's salary is at or below the wage ceiling.
- Employers need to dedicate internal resources to handle these issues.
- There is no provision for either the employee or the employer to correct errors independently.
- There is a lack of standardised guidelines from EPFO.
What Can Employers Do Right Now?
There are a few measures available for employers to deal with these issues.
Firstly, EPFO provides options to employers to verify a member’s service history through the employer portal, which helps employers make the right decision about enrolling a member under EPS.
Secondly, EPFO also provides online options to merge or demerge the EPS service of a member/employer by submitting valid proofs, which helps in fixing legacy errors that are already in the system. Legacy errors are basically mistakes in a member’s EPS service record from previous employment, such as contributions that were wrongly credited or wrongly omitted over the years. Merging means combining the EPS service periods that were incorrectly recorded separately, and demerging means separating EPS service periods that were incorrectly clubbed together. Employers can request these corrections online by submitting the required proofs.