Updated : January 04, 2025Applicability of Provident Fund on Private Establishments
Introduction : Employee's Provident Funds and Miscellaneous Provisions Act have a very important place among the social securities. This Act came into force in 1952 to provide compulsory PF to employees of factories and establishments. It is a Central Act and extends to the whole of India. This Act covers all factories and establishments where 20 or more than 20 employees work and is mentioned under schedule 1 of the Employee's Provident Funds and Miscellaneous Provisions Act, 1952.
Applicability of the Provident Fund
Sub-clause 3 of section 1 of the Employee's Provident Funds and Miscellaneous Provisions Act, 1952, provides the scope and applicability of the act. Every factory or establishment employing twenty or more employees is covered under the act and is under a statutory obligation to comply with the obligations cast upon them under the act. By notification in the Official Gazette, the Central Government may specify such other classes of the establishment to which the act shall apply.
Whereas section 17 of the act empowers the central government to exempt certain classes of establishment from the applicability of the act, section 16 of the act provides the following three categories of establishment to which the EPFMP Act, 1952 shall not apply.
- A co-operative society, registered under the Co-operative Act, 1912 or any other law for the time being in force in any state relating to a co-operative society, employing less than fifty persons and working without the aid of power either from state or central government.
- The establishment belongs to or is under the control of the central or state government, where the employees are eligible for benefits from a contributory provident fund or an old age pension under any scheme provided by the central or state government.
- The establishment is set up under any central, provincial or state act and where the employees are eligible for benefits from a contributory provident fund or an old age pension under any scheme provided by the central or state government.
Mandatory Coverage
Section 1(3) of the act provides for mandatory coverage of the PF when two conditions are met. The first condition concerns the specified industry prescribed under Schedule I; in other words, if the industry is not specifically mentioned in Schedule I, the establishment escapes the coverage, and the number of employees is immaterial. The second condition is of twenty or more employees employed by the establishment and shall come into play after the first condition is satisfied.
Voluntary Coverage
Section 1(4) provides for voluntary coverage by any establishment, irrespective of industry or the number of employees it employs. The only condition is that the majority of the employees and the employer must consent to the voluntary coverage. The voluntary coverage shall automatically convert into mandatory coverage as per section 1(3) when the number of employees reaches twenty or more.
Continuation of Coverage
Section 1(5) provides that once an establishment is covered under the PF Act, the coverage shall continue irrespective of the reduction in the number of the employees from the threshold limit of twenty employees under section 1(3).
Legal Interpretation
The provisions of the Employee's Provident Funds and Miscellaneous Provisions Act, 1952 will apply to every industry, factory, and establishment that is mentioned in Schedule I under the mentioned Act, and it is the central government's discretion or order that they can add any new establishment to the schedule for the implementation of the mentioned Act. The profit and nonprofit motives of an establishment are immaterial for the implementation of the EPFMP Act 1952
When counting the number of employees for the implementation of the mentioned Act, every employee, whether permanent, contractual, or even trainee, shall be counted. For example, if an establishment has 15 permanent employees, eight employees under training, and five contractual employees, then the establishment will definitely come under the EPFMP Act, 1952.
Conclusion
The Provident Fund is a social security scheme implemented by the central government. It has prescribed mandatory coverage for establishments with twenty or more employees so that small employers or establishments are not unnecessarily burdened. However, the provision of voluntary coverage offers an option for small establishments to take advantage of coverage for their employees.
