Employees' Provident Fund Organization (EPFO) has made a major change in the rules for companies running private PF trusts. Under the new rules, now a limit of 2% interest has been fixed on exempted establishments. Also, risk-based audit system has been implemented in place of mandatory audit every year. The government says that this will protect the interests of employees and make the regulatory process easier for companies.
Under the new Standard Operating Procedures (SOPs), now a limit has been fixed on the interest rates of these trusts. According to the new rules, no exempted PF trust will be able to pay interest more than 2 percentage points above the annual interest rate declared by EPFO. The government says that this step has been taken to maintain financial discipline and protect the savings of employees. ET quoted a senior official as saying that some small trusts were declaring interest rates more than 30% due to low number of members, which was expected to increase the financial risk. To stop this, this cap has been imposed on interest rates.
The second major change in the rules has been made regarding the audit system. Now there will be no mandatory audit of all companies every year. EPFO will now audit only those companies in which there is a possibility of violation of rules or financial risk. This has been called risk-based audit system. The government believes that this will reduce unnecessary burden on companies following the rules and will make doing business easier.
How many companies run PF Trust?
There are about 1,000 to 1,200 big companies, public undertakings (PSUs) and private organizations in the country, which are exempted under EPFO. These companies operate a separate PF trust for their employees under Section 17 of the Employees' Provident Fund and Miscellaneous Provisions Act, 1952. However, it is mandatory to provide them facilities equal to or better than the standard scheme of EPFO.
In the new SOPs, companies have been allowed to retain their exempted status even after mergers and acquisitions. Additionally, if a company gives up its exempt status on its own or does so under court order, it must issue a public notice. Its objective is to protect the interests of the employees and ensure that the deposits of the employees are safely transferred to their accounts. These new rules of EPFO will be officially notified soon. It is believed that this will increase transparency in private PF trusts and the retirement savings of employees will be more secure.
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