Provident Fund Compliances for International Workers
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Provident fund compliances for international workers involve adherence to the rules and regulations related to retirement savings plans or provident funds in both the home and host countries. Each country may have its laws and regulations governing provident funds. International workers need to be aware of and comply with the rules of the country where they are employed.
Social Security Agreements (SSAs) or Totalization Agreements between countries can have an impact on provident fund contributions and benefits for international workers. These agreements often address issues such as the coordination of social security systems and the portability of benefits to migrant workers, on a reciprocal basis.
Social Security Agreements (SSAs) generally cover several key provisions to facilitate coordination between the social security systems of two countries. The four important provisions are commonly found in SSAs and play a significant role in ensuring fairness and efficiency for individuals working across borders.
Let’s walk through a simplified example to understand these four provisions, and how a Social Security Agreement (SSA) works. In this example, we’ll consider two fictional countries, Country A and Country B, and an individual who works in both countries during their career.
Assumptions:
The individual is a citizen of Country A.
The individual is employed in both Country A and Country B at different points in their career.
The individual contributes to the social security systems of both countries during his working life.
Scenario:
Determining Applicable Social Security System:
The SSA between Country A and Country B contains rules to determine which country’s social security system applies to the individual based on factors such as residency, type of work, and other criteria.
Detachment Rules:
The individual is temporarily posted to work in Country B. The SSA includes detachment rules specifying that, during the period of the posting, the individual and their employer will contribute to the social security system of Country A.
Totalization of Contributions:
Throughout the individual’s career, they contribute to the social security systems of both Country A and Country B. The SSA allows for the totalization or combining of these contributions to determine eligibility for benefits.
Elimination of Double Contributions:
The SSA ensures that the individual is not required to pay social security contributions in both countries simultaneously. Contributions are made to the social security system of the country where the individual is working at any given time.
Portability of Benefits:
The individual accumulates social security benefits in both Country A and Country B. The SSA allows for the portability of these benefits, meaning the individual can receive payments even if they reside in a country other than the one where they made their contributions.
Equal Treatment:
The SSA includes provisions for equal treatment, ensuring that the individual is treated fairly and without discrimination in terms of social security benefits in both countries.
Who is an International Worker?
“International Worker” can encompass both Indian workers employed abroad or foreign nationals.
- An Indian employee works or is planning to work in a foreign country with which India has entered into a social security agreement. In such cases, employees may be eligible to avail of benefits under the social security program of both India and the host country, based on the terms outlined in the bilateral social security agreement.
- If an employee, other than an Indian employee and holding a passport other than an Indian passport, is working for an establishment in India to which the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (EPF & MP Act, 1952) applies.
Compliance Requirements in Case of an International Worker under EPF & MP Act, 1952
- Need to identify the International Worker as per para 83 of the employee’s provident fund scheme 1952 (https://gmgvellore.files.wordpress.com/2016/04/epf-intl-worker-notification-01-10-2008.pdf)
- Certificate of Coverage
A Certificate of Coverage issued by the social security authorities of one country to confirm that a worker is covered by the social security system of that country. This document is then used to exempt the worker from social security contributions in another country.
For example, if an employee is sent on a temporary assignment to work in another country, a Certificate of Coverage might be issued by the home country’s social security authorities to confirm that the employee continues to be covered by the home country’s social security system during the assignment. This can help prevent the employee from having to make social security contributions in both the home and host countries.
- Contribution to the provident fund in respect of all International Workers
Contribution to the provident fund shall be calculated on full salary payable to international workers. The meaning of Basic wages is the same as given in the Act for international workers, the only difference being that the wage ceiling doesn’t apply to International Workers.
