EPFO update: What happens to EPF account's interest if employer fails to deposit contribution (2024)

To avoid paying penalties and interest, employers must make sure Employee Provident Fund (EPF) contributions are made on time. According to a ruling made by the Supreme Court in February 2022, an employer is required to cover damages if an employee's Employees' Provident Fund (EPF) contribution is delayed.

Note that employers defaulting on contributions are liable to pay damages under section 14B and interest under section 7Q of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 on the amount due.

Damages are levied at the following rate

For 0 - 2 months delay: at 5 per cent p.a.
For 2 - 4 months delay: at 10 per cent p.a.
For 4 - 6 months delay: at 15 per cent p.a.
For delay above 6 months: at 25 per cent p.a.

Damages are restricted to up to 100 per cent of the amount in arrears, the Employees' Provident Fund Organisation (EPFO) said.

Note that a simple interest rate of 12 per cent per annum is payable on the amount due for the entire period of delay, it added.

According to the latest EPFO tweet, “Employers defaulting on contributions are liable to pay Damages & Interest on the amount due.”

How much should an employer contribute to EPF?
The Employees' Provident Fund and Miscellaneous Provisions Act, 1952 mandates that both the employee and the employer match each other's contributions to the EPF account at a rate of 12 per cent of the employee's basic salary, dearness allowance, and retention allowance, if applicable.

The EPF account receives the full employee contribution. In contrast, 8.33 per cent of the employer's 12 per cent payment is put into the Employees' Pension Scheme, while the remaining 3.67 per cent is put into the EPF account. Out of the 12 per cent employer contribution, 8.33 per cent is put in the Employees' Pension Scheme and the remaining 3.67 per cent is deposited in the EPF account.

Therefore, a total of 24 per cent of the employee's salary is contributed to his or her EPF account.

Important FAQs on the employer and employee contribution
According to the EPFO FAQ page, below are some of the important FAQs to note.
1. Whether an employer can deduct the employer’s share of contribution from the wages of employees?
No, it is not permissible. Any such deduction is a criminal offence, according to?

2. Whether the member is entitled to full interest on the belated deposit of PF dues by the employer?
Once the employer deposited the due amount, the PF members will get full interest for each due month and it will not affect the interest due to members on the contribution paid. The employer shall be charged penal interest under section 7Q and penal damages under section 14B of the Act respectively.

3. What will be the effect of non-payment of PF dues by an employer?
The provident fund amount due to the member will be paid only to the extent of the amount deposited by the employer.

4. What are the measures by which the PF account is recovered from a defaulting employer?
Attachment of bank accounts, realisation of dues from debtors, attachment, and sale of properties, arrest, and detention of the employer, action under section 406-409 of the Indian Penal Code and section 110 of Criminal Procedure Code, Prosecution under section 14 of the EPF and MP Act, 1952, according to the EPFO website.

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