Sunday, August 30, 2009

Who gets the PF?

Provident Fund (PF) is a form of Social Security in India. Employers and employees each contribute 12.5% of the Gross Income into this kitty, so that when the employee retires she gets the accumulated savings from her lifetime income. Casual labor is highly prevalent in India, especially in the construction industry where a good percent of the laborers are migrants who move across cities and states based on the demand. Until about 10 years ago, only salaried employees (aka those that get a pay-check once a month) were required to be enroled in the PF program. However, a decade ago, a new law was instituted (in the name of protecting contract labor) that made it mandatory for employers to start PF for casual labor as well. This is a ridiculous policy, since these employees do not have any permanent address, they are mostly illiterate and do not have bank accounts (PF funds are deposited only in bank accounts by the government at the time of maturity). Neither the laborers nor the contractors were happy with this situation and the contractors challenged the law in the courts. After 10 years of fighting, they lost. The contractors' argument (a very valid one) is that there was no way for them to track down these individuals to give them their PF when they retire. They asked the government to put in place a system to give these funds out and promised to contribute to PF once the system was in place. The government's answer.. "It is not your problem how the PF is given away. Your problem ends with depositing the funds with the government".
Of course to us economists it is obvious that these are enormous rents. Here's another twist to the story. The laborers do not care for the PF, all they care about is their money. So they have made it very clear to the employers that if their income is Rs.100, that is what they should get, not a penny less. So, the employers are doling out the entire 25% of the PF into the government kitty, and employing fewer contract labor. In addition, they create bogus employee records with the names of their current employees' family members, open accounts in their name, wait a coupla years, terminate the employee and get the money back.
What a shame and what a waste of entrepreneurial talent!!

1 comment:

Bibek said...

Kindly see the sensitivity of PF authorities !

They are yet to furnish me with any reply !

Bibek Kumar Anand
Convener "SAMPADA"

---------- Forwarded message ----------
From: Bibek Anand
Date: Mon, Sep 14, 2009 at 3:27 PM
Subject: Mechanism of finding Unclaimed PF Accounts !

Dear Sir ,

Namaskar !

Would you please let me know about the mechanism which is used for tracing the unclaimed amounts which are due to employees , lying in the PF trusts of the Companies ?

Sometimes , the amounts do remain unclaimed for years for one reason or the other .

In some cases , it may happen that the employees and their legal beneficiaries are completely clue-less about the sums lying in their PF Accounts .

Kindly make it mandatory for the organizations covered under EPF to send annual reports to the offices of respective RPFCs detailing about the amounts lying in the pending account of such employees who are no more on the rolls of the organizations for over a year . It must cover all sorts of employees whether they had resigned , or were terminated , separated or even died .

Cases which are pending for more than three years must be displayed on the web-site of EPFO . Action taken Reports regarding the defaulters too must be disclosed . Proactive disclosures obviate the unnecessary wastage of man-hours and expenditure incurred in attending the RTI queries and court-cases .

This move will make things very transparent regarding the PF Scene which appear very cloudy as of now . In fact EPFO must be made more employee-friendly than what it presently is .

Regards !

Yours truly ,

Bibek Kumar anand
Convener "SAMPADA"

PS - Ironically the email Id of the Bangalore Office is missing despite Bangalore being the IT capital of India . Kindly see to it on an urgent basis !