Indian companies have been making aggressive inroads into foreign territories, whether in the form of joint ventures or outright buy-outs. To manage their operations abroad, Indian workers are being heavily deputed abroad by their companies. The payment of social security contributions by these deputed workers and their companies has become an increasingly contentious issue.
The deputation period of Indian workers may range from a few months to a few years, but is often not long enough to ensure that the contributions made by them towards social security funds is realizable when they have finished their deputation period to return home; nor do they become eligible for any benefits there under. In the United States, for example, where a significant number of Indian workers are deputed on a regular basis, a person is entitled to social security coverage only when there is a minimum period of contribution for 10 years. However, the current United States visa regime does not permit a worker to stay in the United States for a period beyond 6-7 years. Therefore, the Indian worker who has contributed towards the social security fund for several years, but for a period of less than 10 years, fails to derive any benefit from such contribution. Furthermore, in most other countries the social security benefits are not exportable. This inequity towards the deputed worker and the company deputing such persons has meant that many Indian workers and Indian companies have to incur an additional cost towards such deputation and receive no benefit in lieu thereof.
SOCIAL SECURITY AGREEMENTS: THE RHYME & REASON
In October 2011, the Indian and the German governments signed a comprehensive Social Security Agreement (“SSA”), which subsumed the earlier agreement signed in October 2008. From the Indian perspective, this agreement would immediately benefit thousands of Indian workers working in Germany either as professionals or self employed. This is not the first SSA signed between India and a second state, and the government hopes that it will not be the last. The first such SSA was signed between India and Belgium in November 2006. Thereafter, India has entered into similar agreements with France, Switzerland, the Netherlands, Luxembourg, Hungary, Denmark, Czech Republic, the Republic of Korea and Norway. These countries may not have the largest diaspora of Indian workers, but the thinking is that as more and more countries agree to enter into an SSA with India, India would be able to convince countries such as the USA, UK, Canada and Australia to enter into similar comprehensive social security agreements benefitting the multitude of Indian workers deputed therein.
One reason behind this spurt of SSAs has been the Indian government’s increasingly aggressive stand on the issue of social security contributions made by foreign workers deputed to India. The Ministry of Labour and Employment through the Employees’ Provident Fund Organisation, amended the provisions of the Employees’ Provident Funds Scheme, 1952 (“Scheme”) on October 2008 and then again in November 2010 to impose stringent obligations and restrictions on workers deputed to India by foreign companies. The amendments were meant to ensure that the benefits availed in India by such foreign companies and their deputed workers under the then existent Scheme are curtailed so as to spur their respective governments to consider the inequities meted out to Indian companies and their deputed workers elsewhere.
Until October 2008, foreign nationals on deputation to India were required to contribute towards the Indian social security funds only if their salary was less than Rs.6500/- per month. However, since almost all such foreign nationals were drawing a salary in excess of the amount so prescribed, they did not have to make any social security contributions in India and continued to pay such contributions in their home country and accrue the benefit therefrom. The 2008 amendment introduced the concept of an International Worker (“IW”) and the limit of Rs.6500/- per month was done away with. The 2010 amendment imposed further restrictions on the withdrawal of pension funds vis-à-vis the IWs.
INTERNATIONAL WORKER & EXCLUDED EMPLOYEE
An ‘International Worker’ is defined in the Scheme as (1) an Indian employee who has worked or will work in a foreign country with which India has entered into a social security agreement and is eligible to avail the benefits under a social security programme of that country, or (2) an employee other than an Indian employee, holding something other than an Indian passport, working for an establishment in India to which the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 applies, which includes, any establishment employing 20 or more persons. Pursuant to the amendments, every IW, other than an Excluded Employee (explained below), employed as on the first day of October, 2008, in any establishment to which the Scheme applies shall be entitled and required to become a member of the fund with effect from the first day of November 2008.
An Excluded Employee is defined under the amended Scheme as an IW who is contributing to a social security programme, either as a citizen or resident, of his country of origin with which India has entered into a social security agreement on reciprocity basis, and such person is enjoying the status of detached worker for the period and terms as specified in such agreement. The Excluded Employees and the company employing such employees, when deputed to India, do not fall in the ambit of the Scheme and are therefore not required to become a member of any Indian social security fund for the time period as mentioned in the respective agreement. The benefits, in monetary terms, work out to be a saving of up to 24% of the annual salary drawn by such deputed workers, as both the IW and its employer are each required to contribute 12% of the salary towards the social security contributions in India. The Indian government is hoping that this will become the prime reason why other countries – especially those having significant deputations to India – will be encouraged to sign the SSAs and thereby provide similar reciprocal benefits to Indian companies deputing workers abroad.
GENERAL BENEFITS OF SOCIAL SECURITY AGREEMENTS
The general benefits arising out of the majority of SSAs signed by India are that of detachability of employee, exportability of pension, and totalisation of insurance periods. Detachability relates to those employees who have been deputed abroad, and who continue, by virtue of an SSA, to contribute to the social security funds in their home country. Exportability means that the benefits accrued upon contributions made to social security fund are available to the employee irrespective of whether such employee is situated in the home country or elsewhere. Totalisation benefits account for the total period of service of the employee (irrespective of the territory where such services were rendered) to determine his eligibility for benefits.
Under most SSAs signed to date, workers who have been sent to India to work for a period of up to 60 months are exempt from making social security contributions in India provided they continue to make such contributions in the home country, and vice versa. In the case of the SSA signed with Germany this period stands as 48 months with an additional extension of 12 months, whereas with Switzerland, this period is for a total of 72 months. Furthermore, workers who are deputed to the host country for a period in excess of that prescribed in the respective SSAs and that therefore are required tomake social security contributions in the host country instead of the home country shall be entitled to export the benefits accruing from the same to their home country upon the completion of their assignment in the host country or on retirement. (Note, however, that this provision of export is not available in the SSA with Germany.) Additionally, the period of service rendered by the deputed worker in the host country shall be considered towards determining the eligibility of social security benefits in the event such periods are a determining factor in claiming such eligibility and benefits in the home country. Totalisation benefits are not available for IWs from Denmark, Germany, Netherlands and Switzerland. Moreover, only the SSAs with Germany, Belgium, Switzerland, Luxembourg and France are currently in effect, while agreements negotiated with other countries are awaiting ratification by their respective governments. Thereby, the companies and employees deputed from countries which haven’t signed the SSAs with India, or whose SSAs have not yet become effective continue to be bound by the contribution requirements under the Scheme.
NON-SSA COUNTRIES: DISADVANTAGEOUS POSITION
-Before 2010, an IW could withdraw the contributions made by him to the Indian social security funds after attaining the age of 55 years, or at the time of termination of service or upon migration from India for permanent settlement/ taking of employment abroad. However, post the amendments, the IW may withdraw the contributions made by him to the Indian social security funds only under the following circumstances: (1) On retirement from service in the establishment at any time after the attainment of 58 years; (2) On retirement on account of permanent and total incapacity for work due to bodily or mental infirmity (3) On suffering from tuberculosis, leprosy, or cancer. The amount, in any of the aforesaid cases, shall be credited to the bank account maintained by the IW in India.
The issues plaguing IWs from non-SSA countries are manifold. Obligations towards dual-payment of social security contributions – in the home as well as host country – restrictions on withdrawal of accumulated contributions, maintenance of bank account in India are some of the issues haunting IWs and companies alike. Furthermore with effect from April 2011, a Provident Fund account becomes inoperative after 36 months from the date it becomes payable where no request for withdrawal or transfer has been made. Since the contributions are eligible to be withdrawn only after the IW has completed 58 years of age, such accounts will become inoperative and no further interest on such amounts in the account will be payable. In the event a divided payroll is being provided to the IW – where the salary is being paid both in the home and the host country – the calculation of contribution towards Provident Fund shall be made on the total salary earned by the IW. Also, in case the IW has multiple country tasks, and the IW spends some part of his deputation abroad, his full salary shall be considered for computation for the contribution for Provident Fund.
Depending upon the terms and conditions contained in individual SSAs already signed, and those that are under negotiation, the limitations imposed upon the IWs and the companies deputing them may differ. However, broadly, the benefits of detachment, exportability, and totalisation are available in the majority of SSAs signed till date. And as more and more countries opt to sign the SSAs – as per the available information, negotiations with the governments of Sweden, Australia, Canada and the USA are currently on – the loss due to unclaimed benefits on social security contributions made by Indian workers deputed abroad is expected to decline, and with that, the cost incurred by companies making such deputations. On a reciprocal basis, the cost incurred by foreign companies deputing IWs in India will also decline.
The global workforce pool is a significant asset that requires careful management and assimilation, and isessential for achieving economic integration. Cross-border movement of workers has seen a gradual increase in the past few years, and it appears that this increase is not of a temporary nature. Lately, it has been observed that workers are being deputed abroad for relatively short periods of time – mostly for project-specific assignments. In this arena of globalised workforce movement, it is therefore increasingly necessary to have globally harmonized social security laws, and specific international treaties aimed at making it easier for companies to depute workers abroad.
It is therefore important that the governments of respective countries who have a significant number of its citizens deputed to India make an urgent effort to negotiate and execute the SSAs with India and thereby ensure that an equitable and mutually beneficial environment of cross-border worker deputation is put in place. The mantle should, however, be taken up by companies, who will benefit the most from reduced worker deputation costs, to lobby vigorously with their respective governments to negotiate and arrive at an equitable consensus on social security laws.
Sunil Tyagi is a Senior Partner and Sayanhya Roy is an Associate at ZEUS Law Associates (‘‘ZEUS’’). ZEUS is a corporate commercial law firm based in India. One of its areas of specialization is employment law related transactional and litigation work. The authors can be contacted on email@example.com.
By Sunil Tyagi and Sayanhya Roy