International Workers Legal Analysis and Practical Implementation www.labourlawsinstitute.com

Agenda Concept of International Workers Inbound Perspective Outbound Perspective Social Security Agreements ( SSA) Challenges – Outbounds and Inbounds

Impact on Foreign Nationals Inbounds

International Worker – Inbound Foreign Nationals Covered Establishment: Every establishment in India, employing 20 or more employees, is required to register with concerned Employees’ Provident Fund Organisation ( social security authorities ) under Section 1(3) of the Employees’ Provident Fund & Misc. Provisions Act, 1952 . If in case of less than 20 persons ( employees) can also register voluntarily under Section 1(3) of the Act,1952. Since November 2008 – Concept of International Workers (IWs) was included in the ambit of EPF and EPS which was amended in 2010 . ( Ref. Paragraph 83 of the Scheme, 1952 ) IWs - Inbounds Non Indian passport holders working with a covered establishment Inbounds from SSA countries continuing home country contributions and having a certificate of coverage excluded. ( COC or Ditachment Certificate ) Inbounds from Singapore exempt where the criteria under the Comprehensive Economic Cooperation Agreement is met Nepalese and Bhutanese Passport holders would deemed to be Indian Workers (and not International Workers) under the Friendship Treaty (notification dt. 02 Nov 2016) OCI and PIO card holders being non-Indian passport holders are not excluded - enhanced focus by EPFO during inspections What are the implications in case where Nepalese and Bhutanese are treated as IWs prior to the notification? Impact of past non-compliances for IWs – interest (7-Q), damages (14-B) etc.

International Worker (IW) – Foreign nationals On local payroll Form IW1 to be filed at the time of on-boarding indicating nationality and wage details of the foreign national Wage ceiling not applicable Employer and employee contributions at 12% of Pay as defined under PF Act. Employee’s contribution of 12% is entirely towards PF Employer contribution of 8.33% of pay diverted to pension account (only 3.67% goes to PF) New joinees (effective 1 September 2014) are exempt from contribution to Employee Pension Scheme provided the pay exceeds INR 15,000 per month – applicability of this provision to IWs? Pay means basic wages, dearness allowance (including cash value of food concession)and retention allowance Dispute with respect to determination of basic wages – focus on special allowance Increased exchange of information between tax, PF and immigration authorities Inspection by PF authorities Information shared by employees during withdrawal Circular issued in May 2013 providing guidelines to Regional Provident Fund Commissioners to secure compliance regarding IWs

Impact on outbound Indian nationals

Outbound Indian Nationals – IW An Indian national who has worked in a country with which India has an effective social security agreement: has contributed to the social security program of such country is entitled to receive a benefit under the social security agreement. excludes an employee who has obtained the certificate of coverage Example- Mr. A is an Indian national locally hired in Belgium in 2014. He contributed to social security in Belgium during his employment with Belgium company. He moved back to India and started his employment with an Indian company in 2016. Mr. R an Indian national was on deputation to Canada in 2011 and worked there for one year. He contributed to the social security in Canada during that time. He is on deputation to Canada again from Nov 2016 and has obtained a COC from India this time. IW tag – implications Wage ceiling not applicable Pay includes all components which are “universally, necessarily and ordinarily paid to employees” – special allowance? Employees who have contributed to the SS regime of an SSA country prior to the effective date of the SSA would also be considered as IW

International Worker (IW) – Outbounds Guidelines based on January 20, 2016 circular issued by EPFO The guideline broadly provides that If wages or salary are paid or payable out of the books of the Indian establishment, PF contribution would be required Position where Form 10 is not filed? Contribution in case of deputation to branches of Indian establishment overseas where no Indian salary is paid? Can PF contributions be continued in case of a payroll transfer to SSA country – can PF for this purpose be limited to Rs. 15,000? Employee travelling to social security agreement (SSA) country and COC has been obtained PF contribution to continue and reporting compliance should be same as what was being reported immediately prior to deputation Since COC is availed, contribution to social security in host country is not required in respect of covered contribution Employee travelling to SSA country and COC has not been obtained PF contribution would be required only if any Indian salary is payable or paid. Employee to be governed as per law of host country Employee travelling to non- SSA country PF contribution would be required only if any Indian salary is payable or paid. Employee to be governed as per law of host country

Deputation Models Model Type Tax Implication Social Security Implication Payroll Transfer- termination of India employment India tax withholding may not trigger Social security contribution is not required since there is a full and final settlement in India. Form 10 to be filed In case of SSA country No scope to avail COC benefit Employee would qualify to be an IW upon return to India Home country payroll continued and benefits provided abroad Tax withholding to continue on regular compensation paid to employee in India In case of resident and ordinarily resident (ROR) employees, taxable benefits provided abroad need to be considered for tax withholding purposes Provident fund contributions to continue through the monthly payroll process COC benefit could be availed No risk of being tagged as IW Payroll outside India but lien on employment continues in India In absence of any payment by Indian entity, a position can be adopted that there is no withholding requirements in India. COC can be availed provided contribution to PF is made in India and reporting compliance have to be same as was being reported immediately prior to deputation Non-SSA country Based on the circular if no Indian salary, there is no requirement to contribute to PF in India. Whether overseas deputation period considered for gratuity purposes? What is the salary considered for determining gratuity benefit?

Impact in case of PF wages less than INR 15,000 Wage Ceiling enhanced to INR 15,000 p.m. effective from 1 September 2014 EPFO approach on this The total wages of employees are split by the employer to the extent that PF liability is reduced upto 50% of total wages - Circular dated 6 August 2014 Under no circumstances shall the employer be permitted to segregate the CTC/salary into such components so as to bring the amount (of wage) on which contributions is payable by him under section 6 of the Act, under - Circular No 34/2013-14 dated 24 March 2014 Implication to employers Impact on special allowance Impact on past contributions Definition of Pay remains the same for an international worker and a domestic worker Pay under the PF Act, 1952 Includes – Basic wages, dearness allowance , retention allowance & food concession . Excludes – HRA, Overtime allowance, Bonus, commission and any other allowance of a similar nature Hon’ble Supreme court in case of Manipal Academy1, on the basis of principles laid down in Bridge & Roof2, has held that any allowance paid universally, necessarily and ordinarily to employees should be considered as basic wages and PF would be applicable on the same 1 2 AIR 1963 SC 1474 ( Full Bench )

Electronic Challan Cum Return (ECR) Version II – Changes in the new ECR The most significant change is the inclusion of Gross wages in the new format. A new field for gross wages has been added. Accordingly, in addition to the salary considered for PF contributions, the gross wages as reported in the payslip need to be reported going forward. The member ID has been discarded and UAN will be the key field in the ECR. Any ECR that the employer sends to the EPFO will now have to include the newly generated UAN of the new member, or the linked UAN in case it has been already been generated for the employee. Possible challenges that could be triggered: Where the PF wages are less than Rs. 15,000 per month for domestic workers, the PF authorities can now compare the gross wages and the PF wages and raise demands for the differential PF. Challenges where the gross wages is higher than the PF wages for in respect of International Workers.

Form 11 IW tracking through Form 11 – revised form issued in September 2016 Following details are requested with respect to IW Country of origin (India or other country) Passport number Passport validity period Inoperative Account Relaxation in the provisions of Inoperative accounts Now applicable after a period of 3 years from cessation of employment On retirement after attaining 55 years of age On account of death On migrating abroad permanently Para 69 specifically provides for withdrawal on account of taking up employment abroad Form 10 does not provide for this option Challenge in case of payroll transfers where full and final settlement is made

Social Security Agreements

Status of Social Security Agreement s (SSA) SSA in Force Country Effective Date Belgium September 1, 2009 Germany 1st October 2009 Switzerland 29th January 2011 Denmark 1st May 2011 Luxembourg 1st June 2011 France 1st July 2011 Korea 1st November 2011 Netherlands 1st December 2011 Hungary 1st April 2013 Sweden 1st August 2014 Finland Czech Republic 1st September 2014 Norway 1st January 2015 Austria 1st July 2015 Canada 1st August 2015 Australia 1st January 2016 Japan 1st October 2016 SSA yet to be effective Country Concluded Signed Effective Portugal Y N Quebec Germany India has a bilateral comprehensive economic agreement with Singapore - this facilitate relief from dual contribution in both countries. Benefits available under the SSA Detachment Totalisation Export of benefits Certificate of Coverage (COC) Terms and Conditions for dealing Iws. www.labourlawsinstitute.com

International Worker (IW) Challenges Outbound Perspective Travel to SSA country prior to effective date of SSA resulting in IW tag - Once an IW, always an IW Process for totalisation benefit need to be specified No uniformity in criteria for availing the benefit of detachment across SSAs. Not all contributions in the host location are covered under the SSA IW tracking through Form 11 and COC application Inbound Perspective Total cost to company goes up where the employee is tax equalized Challenge in monitoring the age of the expatriate employees for withdrawal purposes Mandatory requirement to have an Indian bank account Tracking the assignment period of employee in case of extension www.labourlawsinstitute.com