Employees’ Deposit linked Insurance Scheme - Employees Provident Fund & Miscellaneous Provisions Act | Industrial Laws - B Com PDF Download

Introduction

The total number of Indian workforce in 2004-05 as per National Sample Survey Organization (NSSO) was 459 million. Out of the total workforce,26 million works in the organized sector.

Indian Constitution under ‘Directive Principles of State Policy’ provides that the state shall make useful provision towards ensuring social security for the employees among other directives.

The EPF & MP act 1952 was the first act which was enacted by the Central Government as an important legislative initiative by the inspiration of Directive policy with the goal to provide social security to employees.

The legislative enactments related to social security in the organized sector includes Employees’ Provident Funds and Miscellaneous Provisions Act 1952, Employees State Insurance Act 1948, the employee’s deposit-linked insurance scheme 1976 and Employees Pension Scheme 1995.

The EDLI scheme was enacted as a part and parcel of the social benevolent legislations enacted by the Government of India in 1976.

The socio economic condition of India traditionally had higher unemployment rates. In case, one of the family members becomes lucky enough to find a job rest of the family members become economically dependent upon him. When that person retires, the entire family lives on his retirement income / Pension. But several such situations came where the person died before completion of service.

Other legislation such as EPF act and misc provisions act or employee pension schemes were not sufficient in solving the problems arising out of early death of an employee. This part of the problem was clearly left unaddressed.

It is felt by the govt that social security aspect of employee is required to be looked into with greater importance in such situation. In this backdrop, the Act was amended to incorporate an insurance scheme through the promulgation of Employees’ Deposit Linked Insurance (EDLI) Scheme in 1976.The scheme helps the dependent family member by extending financial assistance in case of accident or death of an employee.

This Scheme, like other social security schemes, was designed to guarantee at least a minimum level of financial support for the sustenance of dependent family members when the earning member dies or suffers a disability.

The scheme

The employee’s deposit-linked insurance scheme 1976 was primarily an insurance scheme promulgated by the central government among other social welfare initiatives for the employees of organized sector.

Assurance Benefit

As per this scheme, monetary benefit known as ‘Assurance benefit’ will be payable to the nominated or dependent family members of employee based on his last twelve months average salary and fund account balance in the event of death of the employee 

Administration of scheme

The scheme is administered by a central board constituted under section 5A of the EPF Act. However, one regional committee supervises the work of central board and advice the board on the administrative matters which were referred to them.

The contribution to scheme

The monthly contribution by the government and the employer in respect of any employee towards the scheme is dependent upon employee’s basic wages, dearness allowance including cash equivalent of food compensation and retaining allowances if any actually drawn during the month.

In the inception stage of the scheme, the upper limit of such monthly wages was predetermined at Rs 5000/-.ie Every employee drawing a wage less than or equal to Rs 5000/-are entitled for the scheme.

With effect from 1st September, 2014 the new wage limit was made INR 15,000/ under EDLI Scheme, 1976 .In effect, the limit had been increased from INR 6,500/- to INR 15,000/- per month. All the employee who are not covered by approved group insurance scheme are now covered under EDLI scheme.

The employer has to pay its contribution and administrative charges at a rate determined by central Govt to the fund within 15 days from every month closing.ie contribution for the month of January to be submitted within 15th February.

It shall be the responsibility of the employer not only to contribute in respect of employee working directly under it but also in respect of employee employed for its own purpose though working under a contractor.

At the inception stage of the scheme, the central Govt use to provide its contribution after financial year closing.

The employer cannot deduct any amount paid by him as contribution to this fund from the wages of employee.

Penalty for non-submission of contribution

If any employer makes default in payment of its contribution within due date, the central provident fund commissioner or any other officer assigned by the central Govt shall recover penalty at the following rates:

Period of default Rate of damages

1. If period of default is Less than two months: Rate of damages shall be payable at 17 % per annum.

2. If period of default is more than two months but less than four months: Rate of damages shall be payable at 22 % per annum.

3. If period of default is more than four months but less than six months: Rate of damages shall be payable at 27 % per annum

4. If period of default is Six months and above: Rate of damages shall be payable at 37 % per annum

From the above, it is clear that more is the days of default ,more is the rate of penalty imposed. Though, the fund commissioner may waive the damages on circumstances specified in the act.

Responsibility of Employer

The employer also has certain responsibilities under this act which are given below:

He has to send a return in Form 5 to the commissioner of the employee provident fund scheme within 15 days from the month closing.

It shall specify the new entrants who were qualifying to be a member of the scheme for the first time and the person leaving the service. Further, certified nomination detail in respect to such employees are also required to be sent.

It is also stipulated in the scheme that a monthly abstract providing aggregate wages of the members in respect of whom contribution is required to be paid and employers actual contribution for all such members are required to be submitted by the employer within twenty-five days from the closing of the month.

The employer has to keep record of EDLI contributions paid, payable and the wages paid to the worker. Commissioner or any other officer may ask to submit such record for his inspection. The employer has to produce such record or any other register he is supposed to maintain according to any other act or rules whenever called for.

The Fund Accounts

Two accounts ,namely the Insurance Fund Central Administration Account and  Deposit-Linked Insurance Fund Account shall be created for the purpose of running the scheme. All the administrative related charges is credited to The Insurance Fund Central Administration account and the related expense is also met from this account.

The contribution toward the employee insurance scheme gets accumulated in the Deposit-Linked Insurance Fund Account and any related expenditure is also made from the account.

The present contribution rates of employer are 0.5% in contribution accounts and 0.01% of administration accounts. However, monthly administrative charges payable under EDLI has to be rounded to the nearest rupee subjected to a minimum amount.

Contribution shall be computed upon total basic wages, DA and Food concession by both employers and employee. The contribution under EDLI scheme is as described below:

1. Contribution in this scheme shall be computed on wage subjected to a maximum wage ceiling of INR 15000/- (fifteen thousand) though Provident Fund is paid on higher wages .Simply put, the contribution for any employee getting wages more than 15000, shall be INR 75/- ( 0.5% of 15000)

2. The contribution calculated as described above is required to be rounded to nearest rupee.

3. EDLI contribution is payable even if an elderly member crossed fifty eight years age and pension contribution for him is not payable as per act. EDLI contribution has to be paid till the member is in service and PF is being paid.

Updated rates of contribution for different scheme.

Investment of the Fund

All the money accumulated in this fund will be deposited with the central government in public account on which interest will be paid as per the directive of central Govt time to time.

The money contributed in the insurance fund will be invested as per the investment pattern under section 52 of employees provident fund scheme 1952.

Section 52 of employees provident fund scheme stipulates that the investment by the fund shall adhere to clauses a to d of section 20 of the Indian Trusts Act. All expenses including any loss from investment shall require to be debited to insurance fund.

The investment of this fund may be made in promissory notes, debentures issued by state or central govt.

The audit of the insurance fund shall be done as per the instructions issued by the central government in consultation with CAG (Comptroller and auditor general of India).The charges on account of audit shall be paid from insurance fund.

The scheme benefits

On the event of death of any employee, who is a member of the insurance fund or of a provident fund which is exempted under section 17 of the employee provident fund Act , the persons who are legally entitled to receive the provident fund accumulated in the name of deceased, in addition, shall also receive an amount in EDLI scheme depending upon average of preceding 12 months salary and balance in the fund account of the deceased.

If the deceased had not completed 12 months membership when the death occurred, then his average balance during period of membership will be considered for fixation of additional benefit to his heirs.

For the purpose of average balance determination in the fund in relation to any employee, the contributions by the employer will be considered .If  any of the contributions whether to be paid by employer becomes due up to the relevant period that will be deemed to have been paid and interest thereon shall also be payable.

The twelve months period for calculating the benefits under this scheme shall be computed backwards from the month immediately proceeding the month of death occurrence of the member.

If the amount so calculated exceeds twenty-five thousand, then the amount payable shall be twenty five thousand plus 25% of the amount by which it exceeded twenty-five thousand rupees subjected to a ceiling of rupees thirty-five thousand.

However, by the notification dated 24th May, 2016, the central Govt amended the benefit of the policy. The relevant portion by which the benefit of the scheme payable to nominees/family members is to be computed is quoted below:

Illustration A

If deceased member’s average monthly wage is INR 10,000/- and average balance in the account of deceased is INR 3,20,000.Both averages are being computed for last twelve months preceding the month in which he died. Further, the duration of his membership is more than 12 months.

HERE, THE FIRST COMPONENT WHICH WILL BE COMPUTED ON SALARY SHALL BE 30 X RS 10,000 =3,00,000.

SECOND COMPONENT BASED ON 50% OF AVERAGE BALANCE OF FUND FOR LAST 12 YEARS BECOME 1,60,000 ( 50% X 3,20,000).BUT THIS WILL BE SUBJECTED TO A LIMIT OF 1,50,000.

Accordingly second component of compensation shall be limited to 1,50,000.

When both component added it becomes 4,50,000.As this amount is less than total cap of six lakh ,the total amount of 4,50,000 shall be payable to nominees/family members.

Illustration B

If deceased member’s average monthly wage is INR 18,000/- and average balance in the account of deceased is INR 4,00,000.Both averages are being computed for last twelve months preceding the month in which he died. Further the duration of his membership is more than 12 months.

HERE, FIRST COMPONENT WHICH WILL BE COMPUTED ON SALARY SHALL BE 30 X RS 15,000 =4,50,000

SECOND COMPONENT BASED ON 50% OF AVERAGE BALANCE OF FUND FOR LAST 12 YEARS BECOME 2,00,000 ( 50% X 4,00,000).BUT THIS WILL BE SUBJECTED TO A LIMIT OF 1,50,000.

Accordingly second component of compensation shall be limited to 1,50,000.

When both components added it becomes 6,00,000.As this amount equals to the total cap of six lakh, the amount of INR 6,,00,000 shall be payable to nominees/family members.

The part time employee shall also be covered under this scheme. If such employee works in more than one factory then the benefit in respect of such person under this Scheme shall be determined with reference to the average of the total balance accumulated in all his accounts.

Beneficiary of Assurance benefit

The nomination exercised by the employee under employee’s provident fund scheme or under the similar fund exempted under section 17 of the Act will be accepted as valid nomination under the EDLI scheme and the assurance amount will be paid to such nominee.

In case no nomination exists or part nomination is available then the remaining amount for which no nomination is made will be equally payable to his family.

If a person who is eligible to receive the monetary benefit of the scheme on death of a member is charged with the serious offence of murdering the member or charged against abetment of such crime, his claim for assurance benefit shall not be decided upon till the conclusion of the criminal proceedings instituted against him. In case he is convicted his share of assurance will not be payable. However if is acquitted of charge, he will be paid his share.

Assurance amount – how to be paid

The nominee or other claimants shall require to send an application to the Commissioner through the employer. The claim has to be lodged in the format as required by the commissioner.The nominee of the expired member can claim the insured amount from EDLI scheme by attaching an attested copy of the death certificate of member along with duly filled up Form 5 (IF). The form is required to be filled up by each claimant separately. In case of claimant is a minor, the form shall  be filled up by the guardian of the minor .

The payment may be made in the following modes as per the option of claimant:

1. Postal money order

2. Depositing in the payee’s bank account in bank or post office

3. Depositing term annuity in the name of  claimant

4. Through the employer

As per the recent circular, henceforth payment will be disbursed through online mode.

Conclusion

The EDLI completes the sphere of social security legislation enacted for the labor force of organized sector along with legislations of Employees’ Provident Funds, Miscellaneous Provisions Act, 1952 , Employees State Insurance Act, 1948 and Employees Pension Scheme 1995 .As per  EDLI scheme, a lump sum amount is paid to the member’s nominated beneficiary or his family member in the event of death of the employee.

The objective of EDLI is to provide employees families with lump sum amount in the event of death of the member to mitigate the loss of a earning member. The money shall be sourced from the EDLI fund which is funded by the periodic contributions from the employer and central government. However, at present central government does not provide any monetary support. EDLI scheme takes no contribution from employee.

EDLI scheme shall be applicable to factories or establishments which are subjected to the statutory requirements of the different provisions of Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. In brief, all employees who join the Employees’ Provident Fund are also covered by employee deposit linked insurance scheme. The EDLI cover its members on worldwide and 24-hours a day basis and it provides the insured amount to nominees or family members without judging the cause or reason of the death.

The EDLI  scheme, since its introduction, had undergone several amendments. Now, the central government does not contributes money to the scheme and the related benefits of the scheme have been modified many times. However, the central government provides administrative support to the scheme. A full fledged administrative framework was set-up by the central government for smooth functioning of the scheme. Presently, only employer has to make the contributions towards fund account and administrative charges.

According to EDLI scheme, in any organization where group insurance scheme is not available to the employees, the employer has to contribute 0.5% of monthly basic pay (basic pay is capped at maximum Rs. 15,000 for computation) as insurance premium for the life insurance cover. The employer contributes the amount in respect of each covered employee of the EDLI scheme for every month of their employment. All employees who are the members of their organization’s Provident Fund and are contributing to their PF account as per rate stipulated by the government are also eligible for EDLI.

The benefit under the scheme is given based on the subscriber’s average balance in fund and his average basic pay over a period of last 12 months .

The insurance coverage amount is sum of the two

1) 30 times the average basic pay of the past 12 months (up to Rs. 15,000 per month), i.e. Rs. 4.5 lakh [Rs. 15,000 X 30]

and

2) fifty percent of the average balance in the fund account of the deceased subjected to a ceiling of 1.5 Lakh

The summation so arrived shall be subjected to a total ceiling of Rs 6 Lakhs.

There also exists a scheme of group insurance policy which gives better coverage than EDLI scheme. At the inception, the government introduced the EDLI scheme as a compulsory scheme to be opted by all employees. But now, with the advent of plenty of insurance companies in India, many of them provide different type of insurance options as compared to traditional  EDLI.

Further, It is also felt that the compensation amount giving life cover under EDLI  is not sufficient for the dependents. The government has also provided that an employer can approach a life insurance company for better coverage for its employees as an alternative to EDLI scheme. The employer can fix a higher sum assured for the employees.

Now, the employer can opt for others insurance scheme for its employees with the approval from board. The necessary exemption from the scheme in this regard can be allowed under section 17 of the act. In these cases, on application, the EPFO (Employees’ Provident Fund Organization) exempts an employer/company from EDLI. This alternative scheme is known as group insurance scheme.