Revision in EPFO Penalty rates
Ministry of Labour and employment vide its gazette notifications
GSR 327(E)-Employee Pension Scheme,
GSR 329(E)-Employee Provident Funds Scheme
GSR 330(E)-Employee Deposit Linked Insurance Scheme
all dtd 14 June 2024, announced the change in penal charges payable by employer for default in payment of contribution or any other sum under the respective statutes. This change takes effective from 15 June 2024.
Penal charges across all 3 schemes, stands revised to 1% per month or part thereof on the arrears in contribution, for any default in making contributions or paying charges under the schemes and the rate also applies to any default in the transfer of accumulations under the PF Scheme.
Existing system:
The slab under existing
system is
|
Duration of delay |
Penalty rate (p.a) |
|
Less than 2 months |
5% |
|
2 months- 4 months |
10% |
|
4 months-6 months |
15% |
|
6 months and above |
25% |
Under the existing system, rate of damages was capped at 25% per annum for a delay of six months and above.
New system: Notifications by Ministry of labour ( states that where an employer defaults in a) payment of any contribution to the EPFO or b) in the payment of any charges payable under the scheme, then damages from the employer at the rate of 1% of the arrear of contribution per month or part thereof shall be recovered.
Meaning, a flat rate of 1% on the amount arrears in contributions per month or part thereof with no upper cap will be applicable.
As per the revised rule, for a delay of six months: the damages will be 6% ( at the rate of 1% per month or part thereof), as against the old system where it would be 25%.
On the contrary, in case of a delay of more than 25 months, the rate of damages will continue to increase by 1% each month without any limit as against the maximum 25% ceiling under the old regime.
Expected Implication:
In case of extended delays in remitting employee’s contribution→ since there is no longer a upper cap on percentage of damages that can be levied →there will be higher penalty, pushing the employers for quicker rectification of default.