Should foreign employees in India contribute to EPF? Supreme Court to examine

The Supreme Court on Thursday agreed to examine whether foreign employees working in India are required to contribute to the Employees’ Provident Fund (EPF) under the Employees’ Provident Fund Scheme, 1952 [LG Electronics Vs Union of India].

A Bench of Justices PS Narasimha and Alok Aradhe issued notice to the Central government on a plea filed by LG Electronics challenging the validity of paragraph 83 of the EPF Scheme, which governs provident fund contributions by 'international workers'.

The Court also directed that final orders should not be passed in ongoing proceedings under Section 7A of the EPF Act against the petitioners while the matter remains pending before it.

The dispute centres on Paragraph 83 of the EPF Scheme, introduced through notifications issued in 2008 and 2010, which created special provisions governing provident fund contributions by 'international workers'.

The provision was introduced after India began entering into Social Security Agreements (SSAs) with several countries to coordinate social security coverage for employees working across borders. These agreements are designed to prevent double social security contributions, ensure portability of benefits, and protect employees temporarily deputed to another country.

Under the EPF framework, an 'international worker' broadly includes foreign nationals working in establishments in India to which the EPF Act applies. Such workers are required to contribute to the provident fund unless they qualify as 'excluded employees' such as individuals covered under a social security programme in their home country pursuant to an SSA with India.

Where no such agreement exists, foreign employees working in India must contribute to EPF irrespective of their salary level, unlike Indian employees who are mandatorily covered only up to the statutory wage threshold.

Companies employing expatriates have challenged these provisions, arguing that they impose mandatory contributions on foreign employees even for short-term assignments in India, while restricting withdrawal of the accumulated funds until the employee reaches retirement age.

In November last year, the Delhi High Court upheld the validity of the 2008 and 2010 notifications and dismissed the petitions filed by SpiceJet and LG Electronics.

The High Court held that the Central government was empowered to extend the EPF Scheme to foreign nationals and that treating international workers as a separate class for the purposes of provident fund contributions was constitutionally permissible.

LG then approached the Supreme Court against the High Court verdict.

During the hearing before the Supreme Court today, LG Electronics submitted that different High Courts have taken divergent views on the issue and that the Supreme Court will have to settle the legal position.

The counsel for the Employees’ Provident Fund Organisation (EPFO) told the Court that the organisation acts as the nodal authority responsible for implementing India’s social security agreements with foreign countries. He cautioned that striking down paragraph 83 could have wider international implications and may amount to a “material breach” under the Vienna Convention on the Law of Treaties, since the provision forms part of India’s framework for implementing social security agreements.

He further informed the Court that India has entered into nearly twenty SSAs with foreign countries and it recently concluded a treaty with the United Kingdom. Pendency of litigation concerning the EPF provisions had been raised during treaty negotiations, he contended.

Taking note of the submissions, the Court directed the EPFO to place on record a compilation of relevant treaties and related materials to assist the Bench in deciding the issue.

During the hearing, counsel for the petitioners expressed concern about proceedings initiated under Section 7A of the EPF Act, which determine provident fund liabilities. The Court then directed that final orders in the Section 7A proceedings should not be passed while the matter remains pending.

LG Electronics was represented by Senior Advocate Jamshed P Cama, with a team from Cyril Amarchand Mangaldas comprising Advocates Anuradha Mukherjee (Partner), Rashmi Pradeep (Partner), Sharan Kukreja (Partner), Vikash Kumar Jha (Partner), Soumya Dasgupta (Principal Associate), Krithika Radhakrishnan (Principal Associate), Twinkle Chadwa (Senior Associate), Shivam Tiwari (Senior Associate), Mukesh Seju (Associate), and Aviral Singhal (Associate).

EPFO was represented by Advocate Siddharth