INTERNATIONAL WORKERS AND SOCIAL SECURITY AGREEMENTS – GROWING SIGNIFICANCE – AN OVERVIEW

In view of significant increase in
the mobility of cross border workers / employees in the recent years, issues
relating to social security benefits to such International Workers [IWs] have
acquired immense importance. Consequently, Social Security Agreements [SSAs],
being bilateral instruments, entered into by various countries to protect the
social security interests of such international workers has assumed lot of
significance. India is not remaining far behind in this respect. In this
article, we have attempted to give an overview of SSAs and social security
issues of International Workers.

 1.  Background

     Foreign nationals coming
for employment in India were earlier excluded from the provisions of the
Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 [EPF Act] as
their remunerations in most cases far exceeded above the statutory threshold
limit.

    On the other hand,
Indian citizens working overseas (other than countries having operational SSA
with India and fulfilling relevant conditions prescribed therein) are subjected
to all contributions to the social security fund of the country where they
work, irrespective of the time spent in another country. Often, the amount so
contributed would stand forfeited, since like the Indian Provident Fund, all
social security schemes are subject to long-term rules of withdrawal, causing
the Indian expatriate or his employer heavy losses.

    In order to create level
playing field and to pressurise other countries to enter into SSAs with India,
‘International Worker’ is introduced as a concept and they are bound to comply
with PF provisions, regardless of their remuneration break-up.

    In October 2008,
Government of India made fundamental changes in the Employees’ Provident Funds
Scheme, 1952 [EPFS] and Employees’ Pension Scheme, 1995 [EPS] by bringing
International Workers [IWs] under the purview of the Indian social security
regime. The Government of India had vide its notifications dated 1^st
October, 2008 introduced Para 83 to the Employees’ Provident Fund Scheme, 1952
and Para 43-A to the Employees’ Pension Scheme, 1995 creating Special
provisions in respect of the International workers [Special provisions].

    In September 2010, the
Ministry of Labour and Employment [MoLE)] issued a notification further
amending the EPFS and EPS vis-à-vis the IWs. However, the notification raised a
lot of issues which required clarifications. In May 2012, the MoLE vide its
notification dated 24^th May, 2012 made further amendments in the
Employees’ Provident Scheme to clarify various issues.

    An important
clarification is that IWs who are covered under an SSA that India has signed
with other countries and that are in force can withdraw their PF accumulations
immediately on cessation of employment in establishments covered under EPF Act
in India and will not have to wait till 58 years of age to get access to their
PF accumulations. Further, the definition of excluded employee (who need not
contribute to Provident Fund in India) has been expanded to cover exemption
granted under bilateral economic agreements.

 2.  Social Security

     The term ‘Social
Security’ has been explained by the International Labour Organisation as the
protection which society provides for its members, through a series of public
measures, against economic and social distress that otherwise would be caused
by the stoppage or substantial reduction of earnings resulting from sickness,
maternity, employment injury, unemployment, invalidity, old-age and death; the
provision of medical care; and the provision of subsidies for families with
children.

     The key social security
legislations in India with respect to employees are:

 (i)  The Employees’ Provident
Fund and Miscellaneous Provisions Act, 1952; (ii) The Employees’ State
Insurance Act, 1948; (iii) The Employees’ Compensation Act, 1923; (iv) The
Maternity Benefit Act, 1961; and (v) The Payment of Gratuity Act, 1972.

    The Social Security
contributions have significant importance while structuring international
assignments for employees. Any social security benefit payable in the host
country may become an added cost to the employer, especially in situations
where there are restrictions for withdrawal. It is in this context that SSAs
executed between countries come into perspective and they need to be carefully
evaluated to help reduce the financial implications. At times, secondment
arrangements are structured to ensure that the expatriate employee continues to
derive social security benefits in the home country during the period of
assignment.

 3.  Social Security Agreement

a.  Social Security Agreement

    A Social Security
Agreement is a bilateral instrument to protect the social security interests of
workers posted in another country. Being a reciprocal arrangement, it generally
provides for equality of treatment and avoidance of double
coverage/contribution.

 b.  Main provisions covered
in a SSA

     Generally a Social
Security Agreement covers 3 provisions. They are:

 a) Detachment:
Applies to employees sent on posting in another country, provided they are complying
under the social security system of the home country.

b)  Exportability of
Pension: Provision for payment of pension benefits directly without any
reduction to the beneficiary choosing to reside in the territory of the home
country as also to a beneficiary choosing to reside in the territory of a third
country.

c)  Totalisation of
Benefits: The period of service rendered by an employee in a foreign
country is counted for determining the “eligibility” for benefits,
but the quantum of payment is restricted to the length of service, on pro-rata
basis.

 c.  Articles forming part of
a typical SSA

    The brief description of
the Articles contained in the latest India-Australia SSA signed on 18-11-2014,
are as follows:

4.  Status of various Operating Indian SSAs

 India presently has 17 operating
SSAs, the brief details of which are given below:

 (Abbreviations used:- A:
Available  NA: Not Available.)

 4.1     Administrative
Agreements

          In all cases where
India has signed SSAs except in case of SSA with Switzerland, Canada and
Hungary, Administrative arrangements have been entered into or Administrative
Agreements have also been signed, concerning the implementation of the
agreement on social security.

 4.2     SSAs with Portugal
& Quebec

        In addition to above mentioned 17 operating SSAs,
SSA with Portugal has been signed on 04-03-13 and SSA with Quebec has been
signed on 26-11-13. However, both these SSA have not been notified so far and
have, therefore, not entered into force.

4.3     SSA with Germany

          The SSA with
Germany was executed on 8th October, 2008 and came into effect on 1^st October,
2009. This agreement however covered only the detachment provisions, as per
which, individuals on short term contract up to 48 months (extendable to 60
months with the prior consent of the appropriate authority) can avail
detachment from host country social security. Since this agreement did not
address exportability of pension and totalisation of contribution periods, the
Governments of India and Germany have negotiated and signed a comprehensive
social security agreement on 12^th October, 2011. This agreement is
to subsume the SSA signed on 8^th October 2008. However, a
notification bringing into effect the new agreement is still awaited. The new
comprehensive agreement with Germany envisages the following benefits to Indian
nationals working in Germany:

  (i)   The employees of the home country
deputed by their employers, on short-term assignments for a pre-determined
period of less than 5 years, need not remit social security contribution in the
host country. For example, in case of deputation of an Indian employee to
Germany vide a short term contract of up to five years, no social security
contribution would need to be paid under the German law by the employee
provided he continued to make social security payment in India.

 (ii)  The benefits under the
SSA shall be available even when the Indian company sends its employees to
Germany from a third country.

 (iii)  Indian workers shall
be entitled to the export the social security benefit if they relocate to India
after the completion of their service in Germany.

 (iv)  Self-employed Indians
in Germany would also be entitled to export of social security benefit on their
relocation to India.

 (v)   The period of
contribution in one contracting state will be added to the period of
contribution in the second contracting state for determining the eligibility
for social security benefits (totalisation).

4.4   Negotiations with USA
and UK

USA: USA has
entered into Totalisation Agreements i.e. SSAs with 25 countries including the
UK, South Korea, Australia, Japan and Chile etc. For almost a decade,
India and USA have had talks on the totalisation agreement, however, without
much success. India sends the highest numbers of temporary workers to the USA,
who mostly work for the tech companies.

The current social security laws in
the US, including the Employee Retirement Income Security Act of 1974, allow an
employee to withdraw pension on only after a minimum qualifying period i.e. 10
years while the visa regime does not ordinarily permit the employee to stay
beyond 10 years. Therefore, Indian employees who travel to USA for a period
less than 10 years forego their social security contributions when they return.
This has ended up being a significant issue on account of the large number of
Indian employees in USA.

It however seems that the due to
lack of political will, US is holding back the signing of the agreement since
it believes that India is likely to gain disproportionately from such an
agreement. However, whenever the long pending agreement between India and US is
executed and comes into force, it will benefit a large number of Indians
working in the US, with regard to social security contributions.

UK: The recent maiden visit of the
UK Prime Minister in November, 2016 gave a ray of hope to the supporters of
proposed SSA between India and UK. As the UK is one of the prime destinations
for outbound employees from India, a SSA will favourably impact the cost of
employment for employers in both countries.

5.    Some relevant Questions and Answers in respect of IWs and SSAs

 4.1   Who is an International
Worker?

       An IW may be an Indian worker or a foreign
national. IW means any 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 social security programme of that country,
by virtue of the eligibility gained or going to gain, under the said agreement.

       An employee other
than an Indian employee, holding other than an Indian Passport, working for an
establishment in India to which the EPF Act applies, is also an IW.

 4.2   Is an Indian worker
holding Certificate of Coverage [COC], an International Worker?

      Merely holding the
COC does not make an employee an International Worker. He/she becomes IW only
after being eligible to avail the benefits under social security programme of
any country. After obtaining COC, the employee is exempted from contributing to
the social security systems of the foreign country with whom India has SSA,
hence he/she is not eligible to avail the benefits under the social security
programme of that country.

 4.3   Who is an ‘excluded
employee’ under these provisions?

 a) A detached IW contributing
to the social security programme of the home country and certified as such by a
Detachment Certificate for a specified period in terms of the bilateral SSA
signed between that country and India is an ‘excluded employee’, under relevant
provisions; or

 b) An IW, who is contributing
to a social security programme of his country of origin, either as a citizen or
resident, with whom India has entered in to a bilateral comprehensive economic
agreement containing a clause on social security prior to 1^st
October, 2008, which specifically exempts natural persons of either country to
contribute to the social security fund of the host country (e.g. para 4 of
Article 9.3 of CECA between India and Singapore provides that “Natural
persons of either Party who are granted temporary entry into the territory of
the other Party shall not be required to make contributions to social security
funds in the host country).

 4.4   Who all shall become
the members of the EPFS?

 a)  Every IW, other than an
‘excluded employee’- from 1^st October, 2008.

 b)  Every excluded employee,
on ceasing the status – from the date he ceases to be excluded employee.

 4.5   Which category of establishments shall take cognizance of provisions
relating to IWs?

       All such
establishments covered/coverable under the EPF Act (including those exempted
under section 17 of the Act) that employ any person falling under the category
of ‘International Worker’ shall take cognisance of relevant provisions.

 4.6   Whether PF rules will
apply to an employee if his salary is paid outside India?

       Yes, the provisions
will apply irrespective of where the salary is paid. The PF contributions are
liable to be paid on wages, DA, and Retaining Allowance, if any, payable to the
employee. Hence, if salary is payable by establishment in India contribution
shall be payable in India and other rules will also apply accordingly.

 4.7   Whether PF will be
payable only on the part of salary paid in India in case of split payroll?

      In case of split payroll
the contribution shall be paid on the total salary earned by the employee in
the establishment covered in India.

 4.8   ‘Monthly Pay’ for
calculating contributions to be paid under the EPF Act?

      The contribution
shall be calculated on the basis of monthly pay containing the following
components actually drawn during the whole month whether paid on daily, weekly,
fortnightly or monthly basis: • Basic wages • Dearness allowance (all cash
payments by whatever name called paid to an employee on account of a rise in
the cost of living) • Retaining allowance • Cash value of any food concession.

 4.9   What portion of salary
on which PF would be payable in case an individual has multiple country
responsibilities and spends part of his time outside India?

      Contribution is
payable on the total salary payable on account of the employment of the
employee employed for wages by an establishment covered in India even for
responsibility outside India.

 4.10 Is there a minimum
period of days of stay in India which the employee can work in India without
triggering PF compliance?

        No minimum period is
prescribed. Every eligible International Worker has to be enrolled from the
first date of his employment in India.

 4.11 Is there a cap on the
salary up to which the contribution has to be made by both the employer as well
as the employee?

        No, there is no cap
on the salary on which contributions are payable by the employer as well as
employee.

 4.12 Is there a cap on the
salary up to which the employer’s share of contribution has to be diverted to
EPS?

        No, there is no cap
on the salary up to which the employer’s share of contribution has to be
diverted to EPS, 1995 and the same is payable on total salary of the employee.

 4.13 Should the eligible
employees from any country other than the countries with whom India has entered
a social security agreement contribute as International Workers?

         Yes, International
Workers from any country can be enrolled as members of EPF.

4.14 Regarding Indian
employees working abroad and contributing to the Social Security Scheme of that
country with whom India has a Social Security Agreement, are they coverable for
PF in India or treated as excluded employees?

        No, only employees
working in establishments situated and covered in India may be covered in
India.

4.15 Regarding Indian
employees working abroad and contributing to the social security scheme of a
country with which India DOES NOT have a Social Security Agreement, are they
coverable for PF in India?

       If an Indian employee
is employed in any covered establishment in India and sent abroad on posting,
he is liable to be a member in India as a domestic Indian employee, if
otherwise eligible. He is not an International Worker.

4.16 Whether foreign
nationals employed in India and being paid in foreign currency are coverable?

       Yes, foreign
nationals drawing salary in any currency and in any manner are to be covered as
IWs.

4.17 Whether foreigners
employed directly by an Indian establishment are coverable?

        Foreigners employed
directly by an Indian establishment would be coverable under the EPF Act as
IWs.

4.18 What is the criterion
for receiving the withdrawal benefit for services less than 10 years under EPS,
1995?

       Only those employees
covered by a SSA will be eligible for withdrawal benefit under the EPS, 1995,
who have not rendered the eligible service (i.e. 10 years) even after including
the totalisation benefit, if any, as may be provided in the said agreement. In
all other cases of IWs not covered under SSA, withdrawal benefit under the EPS,
1995 will not be available.

4.19 How long can an Indian
employee retain the status of “International Worker”?

      An Indian employee
attains the status of “International Worker” only when he becomes
eligible to avail benefits under the social security programme of other country
by virtue of the eligibility gained or going to gain, under the said agreement on
account of employment in a country with which India has signed SSA. He/she
shall remain in that status till the time he/she avails the benefits under EPF
Scheme. In other words, once an IW, always an IW.

4.20 Whether the
International Worker will earn interest even after cessation of service after
three years also in view of provisions of inoperative accounts?

      Since the provisions
of inoperative accounts are not applicable in case of international workers,
the restriction of earning interest will not apply. The international worker
shall continue to earn interest upto the age of 58 years or otherwise becomes
eligible for withdrawal.

4.21 Under what circumstances
accumulations in the Fund are payable to an International Worker?

        On retirement from
service in the establishment at any time after the attainment of 58 years. On
retirement on accounts of permanent and total incapacity for work due to bodily
or mental infirmity. A member suffering from tuberculosis or leprosy or cancer.

        In respect of a
member covered under a social security agreement entered into between the
Government of India and any other county on such grounds as may be specified in
that agreement till the time he/she avails the benefits under a social security
programme covered under that SSA.

4.22 Under what condition the
contributions received in the PF account are payable along with interest to
International Worker?

      The full amount
standing to the credit of a member’s account is payable if anyone of the
circumstances mentioned under amended Para 69 of the EPF Scheme, 1952 is
fulfilled, namely: i) on retirement from service in the establishment at any
time after 58 years of age; ii) on retirement on account of permanent and total
incapacity for work due to bodily or mental infirmity, duly certified by the
authorised medical officer; and iii) in accordance with the terms and
conditions provided in an SSA.

 4.23 Is there a cap on the
salary up to which the contribution has to be made under the EDLI Scheme, 1976
by the employer?

       Yes, the amended cap
on the salary up to which contribution has to be made under the EDLI Scheme,
1976 is Rs. 15,000.

 5.    SSA Provisions Explained – Based on India-Belgium SSA

 5.1   How it is that double
coverage is avoided after an agreement?

      When you are employed
either in India or Belgium and sent on a posting to the other contracting
Country, you and your employer would normally have to pay Social Security
Contributions/taxes to both countries for the same work. With the agreement in
place, this double coverage is eliminated and you are required to pay
Contributions/taxes to only one country, provided your posting in the other
country is for no more than 60 months.

 5.2  How does it help
employees who work or have worked in both countries to augment their
eligibility for monthly retirement, disability or survivors benefits?

 a. When you have Social
Security insurance periods in both India and Belgium, you may be eligible for
benefits from one or both countries.

b. Should you have enough
insurance periods under one country’s system, you will get a regular benefit
from that country.

c. If
you do not have enough insurance periods, the agreement may help you augment
your eligibility for a benefit by letting you add together your Social Security
insurance periods in both countries, only for the purpose of deciding your
eligibility.

d. However, each country will
pay a benefit based solely on your periods of insurance under its pension
system.

e. Although each country may
count your insurance periods in the other country, they are not actually
transferred from one country to the other.

f.  Since your insurance
periods remain on your record in the country where you earned them, they can
also be used to qualify for benefits there.

 5.3   What is a detachment
certificate?

      A detachment certificate is otherwise a
“Certificate of coverage” issued by one country (indicating the details of
coverage/membership under its social security system) that serves as proof of
exemption from Social Security contributions/taxes on the same earnings in the
other country.

 5.4   How to obtain a
Certificate of coverage?

      To seek an exemption
from coverage under the Belgian system, the employee must be working in an
establishment covered or coverable under Employees’ Provident Fund Organisation
(EPFO), the Indian Liaison agency. Both the employer as well as the employee
must jointly request a certificate of coverage, in the prescribed format, from
the jurisdictional Regional Provident Fund Commissioner of EPFO.

5.5   I am holding a
Certificate of coverage. When does the date of exemption from the other
country’s social security system start?

      The certificate of
coverage carries a provision for indicating the effective date of your
exemption (based on the information provided in your joint application) from
paying Social Security contributions/taxes in the other country. Normally, this
date shall be on or after the date you started working in the other country but
cannot be a date earlier than the date of effect of the Agreement.

 5.6 Who are all eligible
for applying for a certificate of coverage?

         There are 2
categories of employees eligible for applying for a Certificate of coverage.

a.Those already deputed on a
pre-determined short-term assignment and working in Belgium should apply for a Certificate
of coverage for the period from 1^st Sept. 2009 to the date of
completion of the deputation.

b.Those to be deputed on or
after 1^st Sept. 2009 should apply for a certificate of coverage for
the entire period of deputation in Belgium.

 5.7   How to ascertain
whether an employee is coverable under the Indian or Belgian Social Security
system?

 a.    
An Indian national working in Belgium

b.    A Belgium
national working in India

5.8   What benefits are due
to an employee covered under the Indian system administered by EPFO?

5.9   Whom does the agreement
help?

       The agreement helps the employee,
her/his family and the employer.

5.10 How does the agreement help
the employee?

 The
agreement helps at 3 stages.

a) During the period while the employee is
working;

b) At the time of claiming the benefits and

c) At the time of receiving the benefits.

        While working

a. If both the Indian and Belgian Social Security
systems cover an employee’s work, the employer along with the employee would
normally have to pay Social Security contributions to both countries for the
same work. The agreement eliminates this double coverage so that contributions
are paid to only one system.

 b.Under the agreement, an eligible Belgium
national employed in India will be covered by India, and that employee and the
employer will pay Social Security contributions only to India. If an Indian
national is employed in Belgium, she/he will be covered by Belgium, and that
employee and the employer shall pay Social Security contributions only to
Belgium.

 c.On the other hand, if an employer sends an
employee from one country to work for that employer in the other country for
five years or less, that employee will continue to be covered by her/his home
country and that she/he will be exempt from coverage in the host country. For
example, if an Indian employer sends an employee to work for that employer in
Belgium for no more than five years, the employer and the employee will
continue to pay only Indian Social Security contributions and will not have to
pay in Belgium.

When claiming the benefits

a. An employee may have contributed to the Social
Security systems in both India and Belgium but not have enough insurance
periods to be eligible for benefits in one country or the other. The agreement
makes it easier to qualify for benefits by allowing totalisation of such Social
Security contributory periods in both countries.

b. If an employee has Social Security insurance
periods in both India and Belgium, she/he may be eligible for benefits from one
or both countries. If she/he meets all the basic requirements under one
country’s system, she/he will get a regular benefit from that country. If she/he
does not meet the basic requirements, the agreement may help her/him qualify
for a benefit by allowing totalisation of insurance periods in both the
countries.

c. If she/he does not qualify for regular
benefits, she/he may be able to qualify for a partial benefit from India,
against the contributions made to India, based on totalisation of both Indian
and Belgian insurance periods.

d. Similarly, she/he may be entitled for a partial
Belgian benefit against the contributions made to Belgium, based on totalisation
of both Belgian and Indian insurance periods.

At the time of receiving the benefits

        The benefits under Indian social
security system is not payable outside India. An employee from Belgium was at a
loss being not able to get the due benefits on her/his relocation outside
India. Now, the agreement provides for making payment of benefits to the member
irrespective of whether she/he lives in India or Belgium or a third country.

5.11 Can you tell me an example how the employees
are benefited under the Agreement?

        A member who worked in India and
contributed to EPS, 1995 for 7 years is now living in Belgium after
contributing under the Belgian system for 20 years. He is more than 58 years
old.

 Entitlement

a. Without the Agreement:

        The member has less than the 10 years of
pensionable service required to qualify for member’s pension under EPS, 1995
and hence is not entitled to receive any pension benefit.

 b. With the Agreement

–  Eligibility to Pension under EPS 1995 can be
claimed by totalizing the insurance periods spent under the Indian system (7
years) with the Belgian system (20 years).

–  Since the total insurance period will work out
to 27 years (7+20), which is more than the required minimum eligible service of
10 years, the member becomes eligible to get pension under EPS, 1995.

–  However, this totalised period shall be
considered for deciding the eligibility only and hence, the actual pension will
be sanctioned taking into account the period spent under the EPS, 1995 (7
years) as the pensionable service.

–  Such a pension is payable to the member’s bank
account either in Belgium or in India.

7.    Conclusion

       India’s move to require IWs to
contribute to the Indian social security system has encouraged many countries
to negotiate and execute SSAs with India. The SSAs significantly benefit Indian
workers employed abroad, especially those on short-term contracts.

        In cases where employees are suspended
but their employment is not terminated, in the home country, it is difficult to
ascertain whether the same would trigger provisions of EPF Act and the SSAs. In
some cases, it is difficult to ascertain whether the relationship is in the
nature of employment or assignment and hence whether provisions of EPF Act and
the SSAs would be applicable.

      Application and interpretation of SSAs
and the social security law in India with respect to expatriates is still
evolving. There are open questions when it comes to secondment and deputation
arrangements, especially in light of possible tax implications.

      It is advisable that readers should
carefully examine the provisions of the SSAs before providing any structuring
and other guidance relating to mobility of IWs. _