Pvt bodies may help SMEs in EPF, ESI contributions

India?s 2.6 crore micro, small and medium enterprises could soon have a special facility for complying with sundry statutory requirements.

India?s 2.6 crore micro, small and medium enterprises (MSMEs) could soon have a special facility for complying with sundry statutory requirements.

The facility will be in the form of private service entities which would assist these units to improve their compliance with various laws and regulations in a hassle-free and cost-effective manner. The idea would be flagged by the department of industrial policy and promotion in a discussion paper to be released soon, its secretary RP Singh told FE.

MSMEs account for 45% of India’s industrial output, 40% of exports and about 20% of the gross domestic product. They employ over 6 crore people and add some 40 lakh people to their rolls every year.

The service entities, to be licensed by the government, will be at the service of these units to enable them to collect various statutory contributions from their employees and transfer them to designated government funds like Employees Provident Fund and ESI.

To a certain extent, the private entities ? which could be run by large corporates ? could also supplant the role of organisations like the EPFO.

Companies need to collect funds from their employees and make statutory payments under the Employees’ Provident Fund (EPF) Act, Employees’ Pension Scheme, ESI Act, Payment of Gratuity Act, Personal Injuries Act, Workman’s Compensation Act, etc. As per the EPF Act for instance, establishments employing 20 or more people are required to contribute 12% of the emoluments of the employee to the EPF and ensure a matching contribution by the employee.

?We are coming out with a concept paper, outlining the framework of the organisation, which can come up as a commercial viable entity in the private sector and take over the obligations of SMEs. This (the proposed entity) will be an alternative mechanism to EPFO and ESIC,? Singh said.

Currently, the compliance burden of various laws and regulations on SMEs is huge and most of them, with their limited manpower and resources, find compliance cumbersome.

If they are spared these hassles, then they can use their resources more fruitfully in production and marketing activities.

The DIPP paper will be talking about the creation of one or more service entities which could undertake the responsibility of collecting dues from an SME unit and making the necessary payouts in return for a fee which could be a fraction of the firm’s wage bill.

By allowing more players in the area, healthy competition which would eventually bring down the cost of these services to SMEs can be ensured, Singh said.

The entity will also be required to ensure that the statutory payments of the firms they serve are kept up-to-date and as an when required are settled satisfactorily to the workers.

The department, however, won’t define the exact quantum of the service fee in the discussion paper.

The service entity will be legally liable to redeploy these fund collected from a unit to its employees in case the unit becomes sick.

Singh added, ?Such an organisation can be licensed by the Labour Department and the industry will have the option to resort to this mechanism or comply with the extant regulations for payment of labour dues.?

Commenting on this proposal, HP Kumar, chairman, National Small Industries Corporation said, ?If this entity is created then definitely it will be beneficial for the sector. It will not just reduce the burden and hassles of the SMEs, but will also help them in using the required resources spent on these statutory payments in a better and more useful manner.?

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First published on: 28-06-2011 at 04:05 IST