Expats Provident Fund: Why Foreign Workers Are Stressing Over A Delhi High Court Order

The Delhi High Court has recently ruled that persons from other nations, residing in India for work, will now have to make contribute to the Employees' Provident Fund Organisation (EPFO). However, the ruling could cause confusion and hardships for expats, as per three experts that NDTV Profit spoke to.

The case involved foreign employees working in India for companies covered under the EPF Act, but whose home countries did not have a reciprocal Social Security Agreement or a bilateral economic agreement with India.

As per Alay Razvi, Managing Partner of Accord Juris, this raises the cost of employment for companies and reduces expatriates’ cash availability, since PF balances are generally withdrawable only at retirement age.

While this is not the first time that the courts of highest jurisdictions in their home states have been faced by the the question of PF contributions of expatriates, there is variance in their observations.

The Delhi High Court and the Bombay High Court have ruled in favor of making these contributions, while the Karnataka High Court has ruled in favor of expatriates.

With these conflicting court decisions, the future of the International Workers regime remains uncertain, as per Rashmi Pradeep, Partner (head - southern region), Cyril Amarchand Mangaldas.

The Delhi High Court was hearing petitions challenging two government notifications issued on Oct. 1, 2008, and Sept. 3, 2010, on the grounds that they treated specific groups differently. These notifications made changes to the Employees’ Provident Fund (EPF) Scheme by creating special rules for International Workers.

Before these notifications, the EPF Scheme did not have separate provisions for international employees. The new rules defined who would be treated as an International Worker and an Excluded Employee.

According to the notifications, an Excluded Employee among international workers would mean someone who contributes to the social security system of their own country, provided India has a Social Security Agreement with that country on a reciprocal basis.

It also included Indian employees working in countries with which India has an SSA, as they can receive benefits from that country’s social security programme.

In simple terms, these provisions were meant to ensure that international workers, both foreigners in India and Indians working abroad, are treated fairly depending on whether India has a social security arrangement with their home or host country.

The court explained that, earlier too, the EPF Scheme had been modified in a special way for different groups ,like newspaper employees (in 1956), cine-workers (in 1987), and persons with disabilities (in 2008). Therefore, introducing special provisions for international workers was not the first time the Scheme had been applied differently to a specific group.

The court held that the classification between foreign and Indian employees was reasonable, served a legitimate purpose, and did not violate the Constitution.

As per the experts the ruling can still be challenged before the Apex Court of the country, but meanwhile could make India a less favorable spot for expats. However, it also open the path for a re-negotiation with nations with whom we do not have a Social Security Agreement.

In the near term, this may lead to administrative confusion and could reduce the attractiveness of short-term assignments in India unless employers adjust compensation structures to balance the impact, as per Razvi.

The ruling may also create temporary friction with countries lacking Social Security Agreements, raising concerns over double contributions, as per Ketan Mukhija, Senior Partner at Burgeon Law.

Yet, in the long run, it could become the catalyst for bilateral frameworks and cross-border portability, aligning India's regime with global practices, he said.