Do you or do you not need Aadhaar to open, maintain and exit your EPF account? The Employees’ Provident Fund Organisation (EPFO) issued a circular on 18 October instructing regional provident offices to not coerce employers by way of prosecution in the light of the Supreme Court order on Aadhaar.
The circular is important because EPFO was asking employers to seed the Universal Account Number (UAN) of the employees with Aadhaar. UAN was launched in 2014 with the idea that every employee under the EPF will have only one account number which will be portable from one employer to another and the employee could ultimately de-link herself from the employer.
Being an online facility, the framework of UAN rests on watertight KYC and Aadhaar emerged as the ultimate answer. “Aadhaar is the most efficient way to identify a person for online transactions and hence EPFO made Aadhaar mandatory to meet its objective of one member one EPF account. In fact, some PF offices have made efforts to enforce seeding of Aadhaar with every UAN,” said Sonu Iyer, partner, people advisory services leader, EY.
The background
PF authorities could insist for Aadhaar because in a circular, dated 22 June 2015, EPFO directed employers to seed the Aadhaar number—where the employee had the number—within one month of the employees getting their UAN. The circular also stated that failure to comply would invite action. Further, last year, the EPFO updated its systems to ensure that new employees got UAN only when it was seeded with Aadhaar. “In September 2017, we mandated UAN to be seeded with Aadhaar. This was primarily to avoid duplication of UAN as previously employers were generating a new UAN altogether for the new employee instead of asking for the old UAN. This was defeating the very purpose of UAN which is supposed to act as a link for PF accounts created under different employers,” said a senior EPF official, who didn’t want to be named.
Employers were getting penalised for failing to link Aadhaar with UAN. “Last year EPFO updated its software to generate UAN for the new employee only if the employee provided Aadhaar. Otherwise, the UAN wouldn’t generate and the employers were being heavily penalised. Apart from charging 12% as penal interest per annum, an additional penalty ranging between 6% and 24% was also being levied depending on the duration,” said Rituparna Chakraborty, co-founder and executive vice-president, TeamLease Services Ltd.
But with the new circular in place, the employers now have a breather as penalties no longer loom over their heads. In fact, experts we spoke to said that the circular implies that Aadhaar can’t be made mandatory by the EPFO. “The way the circular is worded it means that employers who are not able to seed Aadhaar with the UAN of their employees will not be penalised, but it also implies that Aadhaar is not mandatory. We are hoping for further clarity by the EPFO on this, as the court ruling and the circular by EPFO point to the fact that Aadhaar can’t be made mandatory,” added Chakraborty.
When Aadhaar is mandatory
The employers can heave a sigh of relief but for employees, the answer is bit more nuanced.
The EPFO official we spoke to said Aadhaar can be made mandatory for EPF members receiving government benefits either in the form of a pension scheme or under the Pradhan Mantri Rojgar Protsahan Yojana (PMRPY).
The EPFO official said the understanding in the organisation is where a benefit is being paid by the government and the money is going from the consolidated fund of India, Aadhaar can be made mandatory. “A part of the Employees’ Pension Scheme or EPS (1.16% to be exact) under the EPFO is paid by the government and as such we can insist on Aadhaar for KYC purposes from PF subscribers,” said the official. This excludes employees who entered the workforce and came under EPF after 1 September 2014 with a starting salary of more than ₹15,000 as EPS was discontinued for these employees.
But experts differ. “The court order is clear that Aadhaar can’t be made mandatory for pension. Further, the burden right now is on the employer to produce and seed Aadhaar which in light of the new judgment seems infeasible. EPFO should ask the employees directly,” said Chakraborty.
Even employees who come under PMRPY will have to provide Aadhaar. Under PMRPY, for new employees earning less than ₹15,000 a month, the government will contribute the employer’s share as well as to EPS for three years. The scheme mandates Aadhaar and as per the EPFO official, it will continue to be mandatory.