Introduction

With the growing landscape of global businesses, there is a constant need to deploy employees for international assignments not only for skill development, but also for the business needs of the organisation. Corporations provide secondment opportunities to their employees, pursuant to which the employees are deputed either to foreign branch offices of the corporations or to group companies in foreign locations. During these secondments and deputations, the employer must ensure the continuation of social security benefits in respect of such employees. In order to abate similar obligations in the host country, India has entered into social security agreements (SSAs) with many countries. SSAs offer various benefits, such as the totalisation of benefits and exemption from dual contributions of social security.

Provident fund regime

The Employees' Provident Funds (EPF) and Miscellaneous Provisions Act 1952 governs employee provident fund contributions for employees in scheduled factories and notified establishments in India. The EPF Scheme 1952, which was framed under the EPF Act, requires provident fund contributions to be made in respect of international workers.

An 'international worker' is defined as:

"a) an Indian employee having worked or going to work in a foreign country with which India has entered into a social security agreement and being eligible to avail the benefits under the social security programme of that country, by virtue of the eligibility gained or going to gain, under the said agreement;

b) an employee other than the Indian employee, holding other than an Indian passport, working for an establishment in India to which the Act applies." (Emphasis added.)

All international workers in an establishment which comes under the purview of the EPF Act must become members of the Employees' Provident Fund Organisation (EPFO); however:

"an International Worker, who is an expatriate and who contributes to a social security programme of his/ her country of origin, either as a citizen or resident, with whom India has entered into a social security agreement on reciprocity basis and enjoys the status of a detached worker for period and terms, as specified in such an agreement is exempted from the purview of the EPF Act."

Similarly, an Indian employee who, having been a member of the fund, withdraws the full amount of his or her accumulations or whose pay exceeds Rs15,000 (approximately $233) per month will be excluded from the EPF Act.

Role of social security

India has entered into SSAs with a number of countries on a reciprocal basis. The SSAs protect the social security interests of workers posted in other countries. As they are reciprocal arrangements, SSAs seek to avoid double coverage (ie, coverage under the social security laws of both home and host countries). Indian employees who are posted to other countries by their Indian employers, without terminating their contract of employment in India, continue to make social security contributions in India as per law. A certificate of coverage (COC) or detachment certificate must be obtained by international workers to avoid double coverage. A COC will be issued by the worker's home country's social security authority in accordance with the relevant SSA. The COC serves as a proof of detachment on the basis of which exemption from social security contributions or social security taxes in the host country are available for the period of detachment. Accordingly, a detached employee will be exempt from the obligation to make contributions under the host country's social security schemes for the period stated in the COC.

SSAs broadly provide benefits pertaining to the following:

  • Detachment – exemption from social security contributions by employees in the host country, provided that they comply with the social security system of their home country.
  • Exportability of benefits – this allows employees sent on assignment to another country, and who are making social security contributions under such host country's regime, to export the benefits to their home country or to beneficiaries in a third country, on completion of their assignment or on retirement.
  • Totalisation of benefits – the period of service rendered by an employee in a foreign country is counted to determine the employee's eligibility for benefits, but the quantum of payment is restricted to the length of the service on a pro rata basis.

India's nodal agency on provident funds, the EPFO, recently issued the consolidated guidelines on provident contributions for outbound employees. In terms of these guidelines, where wages are due and payable or accounted for in the books of the Indian establishment, there arises an obligation to make provident fund contributions for eligible employees. This obligation arises irrespective of whether an employee is deputed to a country with which India has an SSA. In case of a non-SSA country, social security contributions may be required as per the laws of such country, in addition to the requirement of providing provident fund contributions in India

Employers are not required to make provident fund contributions in the case of excluded employees or where there is suspension or cessation of employment.

Recent developments

The Indian government has already signed SSAs with 19 countries in order to enable Indian migrant workers to seek exemption from mandatory social security contribution in foreign countries. These countries are Belgium, Germany, Switzerland, Denmark, Luxembourg, France, South Korea, Netherlands, Hungary, Norway, the Czech Republic, Finland, Canada, Japan, Sweden, Austria, Portugal, Australia and Brazil. However, the SSA with Brazil was signed on March 16 2017 and is not yet operational. Six proposals with respect to the execution of an SSA are in the pipeline with Spain, Thailand, Sri Lanka, Russia, Cyprus and the United States. Notably, each SSA has provisions peculiar to it, such as those relating to the maximum limit of detachment, application to events which occurred before the SSA came into force and minimum period of coverage. Careful examination of such provisions is imperative while determining the mode, quantum and totalisation of provident fund contributions.

For further information on this topic please contact Pooja Ramchandani or Divya Chaudhary at Shardul Amarchand Mangaldas & Co by telephone (+91 11 4159 0700) or email (pooja.ramchandani@amsshardul.com or divya.chaudhary@AMSShardul.com). The Shardul Amarchand Mangaldas & Co website can be accessed at www.amsshardul.com.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.