Sunil Kumar Ruling and Implementation of Pension Provisions under Social Security Code

Until this month, there appeared to be limited visibility as regards the implementation of the labour code regime. While the Code on Social Security, 2020 (SS Code) received the assent of the President of India on 28 September 2020, the enforcement of the new legislative framework remained uncertain, barring the provision for identifying the beneficiaries under the SS Code through Aadhaar. However, on 3 May 2023, by way of notifications in the Official Gazette (collectively, Notification), the Ministry of Labour and Employment, Government of India, brought few more provisions of the SS Code into force. In this update, we navigate through the Notification (available here and here) in some detail.

Enforcement of certain provisions

Implementation of apex court ruling

It may be recalled that in the case of Employees’ Provident Fund Organisation (EPFO) and Another v Sunil Kumar and Others [AIR 2022 SC 5634] (SC Ruling), the Supreme Court of India had, while upholding the constitutional validity of the Employees’ Pension (Amendment) Scheme, 2014 (EPS Amendment), also ruled that the part of the EPS Amendment that required employees opting for higher pensionary benefits to make additional contribution at the rate of 1.16% of the monthly wages exceeding INR 15,000 towards the pension fund, was ultra vires the EPF Act. While declaring so, the Supreme Court, however, also acknowledged that the EPFO may require alternative sources to generate funds so as to disburse higher pensionary benefits to those opting for the same, and therefore, it suspended for 6 months, the operation of the part of its order declaring additional contribution by employees to be invalid, leaving it to EPFO to identify alternative sources to build fund corpus in the interim.

It is on account of these directions under the SC Ruling, the Notification provides that in the case of employees who have been members of the 1995 Scheme as of 1 September 2014 and exercised a joint option with their employers to make contributions on wages exceeding INR 15,000 per month (so as to receive higher pensionary benefits), the employer’s share towards the pension fund account of such employees (Eligible Employees) shall be 9.49% of the wages exceeding INR 15,000 per month instead of 8.33% of such wages, with effect from 1 September 2014. As per the clarification issued on the Press Information Bureau’s website, the Notification does not intend to increase the overall rate of contribution to be made by the employers under the law (which is 12% of wages); rather, it intends to readjust the contributions to be made by the employer between the employees’ provident fund and the employees’ pension fund accounts, such that for employees opting for higher pensionary benefits, a higher share of contribution by the employer would be routed to employees’ pension fund account (resulting in proportionate decrease in the contribution towards employees’ provident fund account).

Comment

The Notification, in part, brings the ambiguity around implementation of the SC Ruling to rest by clarifying the manner in which the EPFO would generate additional funds to disburse higher pensionary benefits to the employees who choose to receive such higher benefit. Few questions, however, remain unanswered / subject to further clarity. For instance, by implementing Section 164(2)(b) of the SS Code insofar as it relates to the 1995 Scheme, one may infer, although not with absolute certainty, that the 1995 Scheme is being integrated into the SS Code only for the period of one year. Further, and more importantly, the definition of ‘wages’ under the SS Code is different from the one under the EPF Act, and one waits clarity as to whether Section 16(1)(b) of the SS Code, which has been brought into force vis-à-vis the 1995 Scheme, would require contributions under the 1995 Scheme to be calculated as per the new definition of ‘wages’, especially when the contributions under the Employees’ Provident Funds Scheme, 1952, which has not been integrated into the SS Code pursuant to the Notification, will continue to be calculated as per the older definition of ‘wages’ (i.e., the one under the EPF Act).

-     Anshul Prakash (Partner), Abhisek Choudhury (Principal Associate) and Deeksha Malik (Senior Associate)

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