Effective Management and Regulation of EPF-Exempted Establishments: EPFO Releases SOP

Responsibilities of trust and EPFO:

EPFO has facilitated the digital process of communication in respect of the issuance of annual statement of accounts or passbook to its members. Such communication shall be made by the board of trustees (BOT) of the exempted provident fund trust to covered employees through communication channels such as SMS, mobile phones, email, or e-passbook as regards the receipt and withdrawal of contributions and the credit of interest in their respective accounts.

The SOP also envisages constitution of an investment committee of financial experts by BOT. The task of such committee shall be to ensure best investment practices and optimal management of trust funds. It may be noted that the verbiage in the SOP does not signify the constitution of such committee as being mandatory.

The SOP outlines the responsibilities of regional office(s) of EPFO as regards the scrutiny of online returns and annual compliance audit by exempted establishments. Further, zonal office and head office have been vested with the authority to monitor the performance of their respective jurisdictional offices.

The term of office of the trustees of the exempted establishment has been reduced to 3 years, as opposed to the current term of 5 years as specified in the Employees’ Provident Funds Scheme, 1952 (EPF Scheme).

Introduction of priority matrix:

The EPFO, through the SOP, has introduced priority matrix for the purpose of taking suitable action against exempted establishments and has classified the establishments into 3 categories (Category A, Category B and Category C), depending on the severity and materiality of such violations.

Category A inter alia includes non-compliances as regards reporting of loss by establishments for 3 consecutive financial years, default in payment of employees’ provident fund contributions and other dues, failure in following investment pattern as per the directions of the Government for 3 consecutive years. The occurrence of any of these violations shall entail immediate cancellation of exemption granted to the establishments albeit upon issuance of a show-cause notice in this regard.

Category B inter alia includes non-compliances arising from failure by establishments to transfer and credit previous accumulations to employees’ accounts, failure to pay inspection charges and maintain detailed accounts showing credit and withdrawal of employees’ contributions.

Category C inter alia includes failure by employer to display the copy of approved trust rules on the establishment’s notice board and not issuing annual statement of accounts / passbooks to employees within 6 months of the close of the financial year.

In case of matters falling under Category B, the establishments shall be directed at first to rectify the deficiency, and in case of Category C matters, establishments shall be asked to be vigilant going forward. However, if any of these violations persists after 2 consecutive occasions (in case of Category B) or 3 consecutive occasions (in case of Category C) without rectification, the same shall result in cancellation of the exemption.