What is Employee Provident Fund and Why is it Important

The Empuls Glossary

Glossary of Human Resources Management and Employee Benefit Terms

Who manages the employee provident fund?

The management of the Employee Provident Fund (EPF) varies by country, as EPF is a social security and retirement savings scheme administered by government bodies or statutory authorities.

In many countries, the responsibility for managing the EPF is entrusted to a designated organization or agency.

Here are some examples:

‍India: In India, the EPF is managed by the Employees' Provident Fund Organization (EPFO), which operates under the Ministry of Labour and Employment, Government of India. The EPFO administers the Employees' Provident Fund (EPF) and the Employees' Pension Scheme (EPS).
Malaysia: The EPF in Malaysia is managed by the Employees Provident Fund (EPF) Board. The EPF is a statutory body under the Ministry of Finance and plays a key role in managing retirement savings for Malaysian employees.
United Kingdom: In the United Kingdom, workplace pension schemes, which are similar to provident funds, are managed by pension fund trustees. These trustees may be appointed by the employer or elected by the members of the pension scheme. The Pensions Regulator in the UK oversees the operation of workplace pension schemes.
Singapore: In Singapore, the Central Provident Fund (CPF) Board manages the CPF system, which includes the Employees' Provident Fund. The CPF Board is a statutory board under the Ministry of Manpower.
South Africa: The pension fund industry in South Africa includes various funds, such as the Government Employees Pension Fund (GEPF) and private sector pension funds. These funds are managed by boards of trustees, and regulatory oversight is provided by the Financial Sector Conduct Authority (FSCA).
Australia: Australia has a superannuation system, and superannuation funds are managed by trustees. The Australian Prudential Regulation Authority (APRA) regulates and supervises superannuation funds to ensure compliance with regulatory requirements.

What is an employee provident fund?

The Employee Provident Fund (EPF) is a financial scheme established to assist employees in saving for their retirement. It was introduced through the Employees’ Provident Funds Act in 1952 and is currently managed by the Employees’ Provident Fund Organisation (EPFO).

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What is the difference between employee provident fund and public provident fund?

The key differences between employee provident fund and public provident fund are:
‍

1. Employee provident fund (EPF):

‍Purpose: EPF is a mandatory savings scheme for salaried employees in India. It is designed to provide financial security and stability to employees during their retirement.‍
Applicability: EPF is applicable to organizations with 20 or more employees. Both the employer and the employee contribute a percentage of the employee's salary to the EPF account.
‍Contribution: The contribution to EPF includes a portion from the employee's salary and a matching contribution from the employer. The employee's contribution is 12% of the basic salary, while the employer's contribution is divided into the Employee Pension Scheme (EPS) and the EPF.
‍Tenure: No fixed tenure; it continues as long as the employee is employed.
‍Governing acts: Governed by the Employees Provident Fund And Miscellaneous Provisions Act, 1952.
‍Tax benefits: Contributions are tax-deductible under Section 80C, and the maturity amount is tax-free.

2. Public provident fund (PPF):

‍Purpose: PPF is a long-term savings scheme primarily designed for individuals to create a retirement corpus and accumulate wealth over a 15-year period. It is also considered a safe investment option.
‍Applicability: PPF is open to all Indian residents, including salaried employees, self-employed individuals, and professionals. It is not tied to employment and can be opened by anyone.
‍Contribution: Individuals can voluntarily invest in PPF by opening an account with a minimum deposit. The maximum annual contribution is subject to a limit set by the government.
‍Tenure: Fixed term of 15 years, extendable in blocks of 5 years indefinitely.
‍Governing acts: Governed by the Government Savings Banks Act, 1873 (earlier Public Provident Fund Act, 1968)
‍Tax benefits: Contributions are tax-deductible, and the maturity amount is tax-free only after 5 years

Who manages the employee provident fund?

The management of the Employee Provident Fund (EPF) varies by country, as EPF is a social security and retirement savings scheme administered by government bodies or statutory authorities.

In many countries, the responsibility for managing the EPF is entrusted to a designated organization or agency.

Here are some examples:

‍India: In India, the EPF is managed by the Employees' Provident Fund Organization (EPFO), which operates under the Ministry of Labour and Employment, Government of India. The EPFO administers the Employees' Provident Fund (EPF) and the Employees' Pension Scheme (EPS).
Malaysia: The EPF in Malaysia is managed by the Employees Provident Fund (EPF) Board. The EPF is a statutory body under the Ministry of Finance and plays a key role in managing retirement savings for Malaysian employees.
United Kingdom: In the United Kingdom, workplace pension schemes, which are similar to provident funds, are managed by pension fund trustees. These trustees may be appointed by the employer or elected by the members of the pension scheme. The Pensions Regulator in the UK oversees the operation of workplace pension schemes.
Singapore: In Singapore, the Central Provident Fund (CPF) Board manages the CPF system, which includes the Employees' Provident Fund. The CPF Board is a statutory board under the Ministry of Manpower.
South Africa: The pension fund industry in South Africa includes various funds, such as the Government Employees Pension Fund (GEPF) and private sector pension funds. These funds are managed by boards of trustees, and regulatory oversight is provided by the Financial Sector Conduct Authority (FSCA).
Australia: Australia has a superannuation system, and superannuation funds are managed by trustees. The Australian Prudential Regulation Authority (APRA) regulates and supervises superannuation funds to ensure compliance with regulatory requirements.

What are the benefits of employee provident fund?

Here are some key benefits of an employee provident fund:

‍

1. Retirement savings

EPF serves as a long-term retirement savings vehicle, allowing employees to accumulate a significant corpus over their working years.
This fund becomes a valuable source of income during retirement.

2. Financial security after retirement

The primary purpose of EPF is to provide financial security to employees after retirement, ensuring that they have a regular income to meet their basic needs and maintain a reasonable standard of living.

3. Forced savings habit

EPF contributions are mandatory for both employees and employers.
This compulsory nature instills a disciplined savings habit among employees, encouraging financial planning and responsible money management.

4. Employer contribution

Employers typically contribute to the EPF on behalf of their employees.
This additional contribution enhances the overall retirement savings for employees, accelerating the growth of the EPF corpus.

5. Tax benefits

EPF contributions are eligible for tax benefits in many countries.
Both the employer's contribution and the employee's contribution may qualify for tax deductions under relevant sections of the income tax laws.

6. Interest accrual

EPF accounts earn interest on the accumulated balance.
The interest rate is generally higher than the rates offered by regular savings accounts, contributing to the growth of the EPF corpus over time.

7. Emergency withdrawals

In certain situations, employees can make partial withdrawals from their EPF accounts for specific purposes, such as medical emergencies, home loan repayments, or education expenses.
This feature provides a source of emergency funds when needed.

8. Flexibility in withdrawal options

Upon retirement, employees can choose to withdraw the entire EPF corpus or receive a monthly pension through the Employees' Pension Scheme (EPS).
This flexibility allows individuals to plan their retirement income according to their needs.

9. Nomination facility

EPF accounts provide a nomination facility, allowing employees to designate beneficiaries who will receive the accumulated funds in the event of the employee's demise.
This ensures that the funds are distributed according to the employee's wishes.

10. Portability

EPF accounts are portable, meaning that employees can transfer their EPF balance when changing jobs.
This ensures continuity of retirement savings and prevents the fragmentation of funds.

11. Social security

EPF is considered a form of social security, providing a safety net for individuals who may not have access to other retirement savings options or pension schemes.

12. Promotes employee loyalty

The provision of EPF as part of the employee benefits package can contribute to employee satisfaction and loyalty, as it demonstrates an employer's commitment to the financial well-being of its workforce.

Why should employers comply with EPF regulations?

The key reasons why employers should comply with EPF regulations are

‍

1. Legal compliance

Compliance with EPF regulations is often a legal requirement mandated by labor laws in many countries.
Non-compliance can lead to legal consequences, penalties, fines, and potential legal actions against the employer.

2. Employee rights

EPF compliance ensures that employees' rights are protected.
Employees have the right to participate in a provident fund scheme, and it is the employer's responsibility to facilitate and manage these contributions.

3. Social security

EPF is a form of social security that provides employees with a financial safety net during their retirement years.
Employers play a crucial role in supporting their employees' long-term financial well-being by contributing to the EPF.

4. Employee retention and satisfaction

Offering EPF benefits is a valuable employee benefit that contributes to job satisfaction and employee retention.
Employees appreciate employers who demonstrate a commitment to their financial security and future.

5. Attraction of talent

EPF compliance can make an employer more attractive to potential employees.
Job seekers often consider the overall compensation package, including retirement benefits, when evaluating job offers.

6. Tax benefits

In many countries, employer contributions to EPF are eligible for tax benefits.
Complying with EPF regulations allows employers to take advantage of these tax benefits, which can positively impact the organization's financial position.

7. Employee morale and trust

Complying with EPF regulations builds trust and confidence among employees.
It demonstrates that the employer is committed to their financial well-being and retirement security, which can positively impact overall morale.

8. Avoidance of legal issues

Non-compliance with EPF regulations can lead to legal disputes and challenges from employees.
Adhering to the regulations helps employers avoid legal issues, disputes, and potential damage to the organization's reputation.

9. Penalties and enforcement

Authorities responsible for EPF oversight may impose penalties on employers who fail to comply with EPF regulations.
These penalties can include fines, interest payments, and legal actions.

10. Facilitation of employee benefits

Compliance with EPF regulations ensures that employees can access the benefits of the provident fund, including the accumulation of retirement savings, partial withdrawals for emergencies, and pension options upon retirement.

11. Ethical and responsible business practices

Demonstrating a commitment to EPF compliance reflects ethical and responsible business practices.
It aligns with the organization's commitment to social responsibility and the well-being of its employees.

12. Enhanced employer brand

A reputation for being a responsible and employee-friendly organization can enhance the employer brand.
Compliance with EPF regulations contributes to a positive image in the job market and among current employees.

Employee pulse surveys:

These are short surveys that can be sent frequently to check what your employees think about an issue quickly. The survey comprises fewer questions (not more than 10) to get the information quickly. These can be administered at regular intervals (monthly/weekly/quarterly).

One-on-one meetings:

Having periodic, hour-long meetings for an informal chat with every team member is an excellent way to get a true sense of what’s happening with them. Since it is a safe and private conversation, it helps you get better details about an issue.

eNPS:

eNPS (employee Net Promoter score) is one of the simplest yet effective ways to assess your employee's opinion of your company. It includes one intriguing question that gauges loyalty. An example of eNPS questions include: How likely are you to recommend our company to others? Employees respond to the eNPS survey on a scale of 1-10, where 10 denotes they are ‘highly likely’ to recommend the company and 1 signifies they are ‘highly unlikely’ to recommend it.

Based on the responses, employees can be placed in three different categories:

Promoters
Employees who have responded positively or agreed.
Detractors
Employees who have reacted negatively or disagreed.
Passives
Employees who have stayed neutral with their responses.

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The Empuls Glossary

Who manages the employee provident fund?

What is an employee provident fund?

What is the difference between employee provident fund and public provident fund?

Who manages the employee provident fund?

What are the benefits of employee provident fund?