Required refinement

India, with an increasing number of young and technically qualified manpower, is emerging as a global reservoir of human capital. The trend of international migrations, expatriations, and workforce mobility is on the rise. India also hosts employees from overseas, who are equipped with both knowledge and specific skill sets.

Indian employees engaged in various countries have been mandated to make social security contributions in the countries where they are posted. Despite their monetary contributions, for several years, migrant Indian expatriates were denied social security benefits in foreign countries up to a certain time period. With the aim of safeguarding the rights of these migrant workers, the Government of India has entered into bilateral Social Security Agreements (SSAs) with numerous nations. These agreements ensure that employees of home countries do not remit contributions in the overseas country. Instead, they can avail the benefit of the totalization period to determine pension eligibility. Moreover, they are granted the choice to receive their pensions in the country they opt to reside in, simultaneously relieving employers from the burden of making dual security contributions. These SSAs also encompass the Provident Fund under the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (PF Act).

Currently, India has established SSAs with countries such as Belgium, Germany, Switzerland, the Republic of Korea, the Netherlands, Hungary, Finland, Sweden, the Czech Republic, Norway, Austria, Australia, Japan, Portugal, Denmark, and the Grand Duchy of Luxembourg.

An SSA generally encompasses four vital provisions — equality of treatment, totalization, portability, and detachment. Equality of treatment ensures that Indian nationals are treated on par with nationals of the host country regarding the applicability of legislations covered under the SSA. Totalization implies the inclusion of the period of service rendered in an overseas country to determine eligibility for pension. However, actual pension benefits are payable exclusively for the contributory service period in India on a pro-rata basis. Thus, it is an addition in period. Most significantly, detachment signifies that Indian employees working in countries with which India has Social Security Agreements are exempted from contributing to their social security system, provided they adhere to the Indian Social Security System. This exemption remains valid for a specified period stipulated in the agreement with the overseas country. In terms of portability, pension benefits are payable without reduction, directly to beneficiaries who choose to reside in their home country or any other country.

As evident from the preceding discussion, there have been numerous positive developments in recent times, resulting in the coverage of many previously ambiguous areas. However, certain issues still require clarification and amendments. For instance, an Indian employee seconded to a country without an SSA signed with India would still remain a member of the Indian PF Fund even while posted abroad. In other words, the employee would be subject to both Indian PF laws and the parallel provisions of the country to which they are deputed. Double coverage is not the intention of PF provisions.

Another loophole pertains to employees coming to India from countries without SSAs. There is no prescribed minimum working period for such employees to be covered, and even if the employee holds responsibilities in multiple countries, they are mandated to be covered under Indian PF laws. The intention of PF provisions is not to include employees who are visiting India briefly. Provisions need to be incorporated to clarify that these legislations are exclusively intended for employees who come to India for actual work, rather than merely visiting for a short period. Such clarifications are conducive for foreign dealings.

One of the pertinent features of the International Workers' Provident Fund provisions is that contributions for all International Workers (IWs) are payable based on their full salary, irrespective of the wage ceiling of Rs 15,000/- that is applicable for Indian employees. An important issue that arises pertains to the components on which the PF is to be deposited. According to the PF Act, it should be deposited on 12 per cent of the salary, including components like basic and dearness allowances. However, confusion arises when considering allowances such as special allowance, conveyance, medical, food, accommodation allowance, etc. The essence of various judgments is that PF must be calculated on fixed allowances, while the variable components can be excluded. Clarifying these areas in the provisions also provides relief from numerous litigation costs.

Non-compliance with the PF Act carries serious consequences. Typically, in case of breaches, authorities impose damages and interest, in addition to requiring the retrospective deposit of the employer's and employee's shares from the employer's pocket. Even if the employer wishes to challenge any order through appeal, it's usually necessary to deposit a certain amount. It is imperative that such provisions are clarified to avoid huge liabilities.

Clear and simplified provisions, as established in SSAs, go a long way in serving the interests of all stakeholders and also in attracting more Foreign Direct Investments (FDIs).

The writer is a practising Advocate in Supreme Court and High Court of Delhi. Views expressed are personal