EPF and ETF in Sri Lanka: Protect your retirement today

 EPF and ETF in Sri Lanka: Protect your retirement today

EPF and ETF in Sri Lanka: Protect your retirement today

 

Table of Contents:

• Employees Provident Fund EPF

• Eligibility for EPF

• EPF Registration for Employers and Employees

• Employees Trust Fund

Employers and employees in Sri Lanka need to understand the differences between Employees’ Provident Fund (EPF) and Employees’ Trust Fund (ETF). Both these social security schemes are very important in ensuring that workers have adequate financial resources for their retirement and in cases of need.

 

While EPF is mainly concerned with providing retirement benefits through employer and employee contributions, ETF provides other welfare benefits without employee contributions. This article explains the EPF and ETF details, requirements for joining, how to register, how to contribute and how to claim, serving as a one-stop guide to understanding these important financial security measures.

 

The EPF department of CBSL is involved in receiving contributions,

 

maintaining and recording the accounts of members, investing the funds and paying benefits to members on retirement.

 

However, like any other retirement benefit system, EPF offers pre-retirement facilities such as housing loans and partial withdrawal for housing or medical purposes. It also ensures that an employee has EPF available to supplement his/her EPF during his/her retirement period and to fulfill other important aspects of his/her life besides working before retirement.

 

As a result of providing a complete structure and double benefits, EPF has continued to be the financial companion of employees in Sri Lanka during retirement.

 

 

Eligibility for EPF

 

EPF is meant to ensure that most private sector employees remain economically productive at their retirement age. However, EPF is not applicable to all employees. Section 8 of the EPF Act 15 of 1958 provides that there are certain categories of employment which are exempted from the provisions of contributing to EPF.

The following groups are not considered “covered employment” under the Act:

• Government employees

• Employees registered under the Local Government Service Commission

• Family business operators

• Employees of charitable institutions with less than 10 employees

• This establishment is a social service organization that provides technical training to minor offenders, the destitute, the deaf and the blind.

• Domestic workers

 

 For all other employees who do not fall under these categories, EPF contributions must be credited as per the law. Employers and employees who fall within the scope of covered employment are legally bound to make contributions as prescribed by the law. Understanding this distinction is essential for both employers and employees to ensure compliance with EPF regulations and to avail retirement benefits for eligible workers.

 

Therefore, if the business is identified as a covered employment, the employer must register his business with the nearest labour office. To register, the employer must do the following.

 

EPF Registration for Employers and Employees

Enrolling in the Employees’ Provident Fund (EPF) is an important step for both employers and employees to ensure compliance with legal requirements and secure retirement benefits. The process for registration differs for employers and employees and involves submission of specific forms and documents.

 For Employers

Employers are required to notify the Department of Labor of their business within two weeks of hiring the first employee. This involves filing a copy, certified and registered post, of what is referred to as “Form D” to the nearest Labor Office or the Labor Commissioner in the area.

 

 Required Supporting Documents:

1. Two original copies of completed “Form D”

Form D Submission:

• For businesses with 10 or less employees, submit two certified copies of the “Form D” attachment with official seal.

• For businesses with more than 10 employees, provide a detailed list of each employee including full name, age, employment, salary and date of appointment.

 

• Certification of “Form D” and attachments must be done by the business owner or a partner. If signed by someone else, a power of attorney is required

 

2. Letter of Explanation: If the request for EPF registration is made more than two years after the business started, provide a written explanation.

 

Additional documents based on the type of business:

• Sole proprietorship: Business registration certificate and photocopy of the owner’s national identity card.

• Partnership business: Business registration certificate and photocopy of national identity cards for all partners.

• Limited or Private Limited Company: Certified copy of Business Registration Certificate or Certificate of Incorporation and relevant forms (Form 01, 05, 20, or 40) listing the information of the Listing Board.

 

• Foreign Company: Business Registration Certificate or Certificate of Incorporation, Form 44, 45 and 46, and National Identity Card or Passport of the person with the power of attorney.

 

• Government Affiliated Schemes: DMR Approvals, Treasury Approvals and Appointment Letters as approved by the Department of Management Services.

 

For Employees

 

To join the EPF, employees must complete and sign a form called “APH”, which must be approved by the employer and sent to the District Labour Office within one month of joining the same service. The form must be completed and accompanied by a copy of the employee’s National Identity Card.

 

This simple registration process makes it possible for employers and employees to meet their legal requirements while getting the opportunity to enjoy EPF benefits like pension funds and other pre-retirement facilities.

 

EPF Contribution Payment Methods

 

As with other EPF contributions, it is the employer’s responsibility to ensure that contributions are made on time and accurately. Earlier, such payments were filed through C filing with a cheque. However, with the introduction of digital banking, the Central Bank of Sri Lanka is promoting online payments in a better and more efficient manner.

 

The process starts with the employer’s registration, which can be done directly at the EPF department or through a licensed commercial bank in Sri Lanka. After registration, employers can enter contribution information and make payments through banking facilities. This digital approach makes the payment process less cumbersome and also makes it easier to track contributions.

 

Notably, while the online payment option is open to all employers, it is mandatory for employers with 50 or more employees. The shift to online filing not only ensures compliance with the regulations, but also increases the accuracy of reports and eliminates time-consuming paperwork.

 

Integrating online payments into the EPF system helps employers find a solution that is convenient for them, and also contributes to the development of the Central Bank’s program to improve the efficiency of EPF contributions. This method is gradually being adopted by many business organizations, and the result is that both the employer and the employee get a better and faster way to handle retirement funds.

Deadline for EPF Payment and Surcharges

Employers are required to pay monthly EPF contributions to the Employees’ Provident Fund Department of the Central Bank of Sri Lanka. If this deadline is not met, a penalty will be imposed, which can add significantly to the amount due.

 

This means that not only are late payments subject to surcharges, but also underpayments. If the contribution paid is below the required amount, a surcharge will be calculated based on the number of days it takes to clear the outstanding balance.

 

The surcharge for late or incomplete payments is structured as follows:

 

• 5% for 1 to 10 days late

• 15% for 10 days to 1 month late

• 20% for 1 month to 3 months late

• 30% for 3 months to 6 months late

• 40% for 6 months to 12 months late

• 50% for more than 12 months late

 

This surcharge emphasizes the importance of timely and accurate payments. Employers need to be vigilant in adhering to the deadlines to avoid these penalties, which can add a significant financial burden to their operations. In addition to complying with EPF regulations, it is important to understand and respect the payment timeline to protect the financial well-being of employees.

 

Claiming Process for EPF

Government and Provincial Government Employees: This Act does not apply to government employees except those who are not eligible for the government pension scheme.

Companies with directors and partners as members: Companies with directors and partners as the only members who are not employees of the company are not subject to the ETF Act.

These eligibility conditions help to make the ETF as comprehensive as possible to provide cash assistance and welfare benefits to employees who are not covered by pension or social security.

 

 Calculate and pay the ETF

 

Employers are solely responsible for contributing to the Employees' Provident Fund (EPF). Importantly, these contributions should not be deducted from employees' wages; they are a separate obligation for the employer. The calculation of contributions is based on the employee's gross income, which includes various components:

 

Salaries, wages or fees

Cost of living allowances, special cost of living allowances and similar benefits

The monetary value of meals provided by the employer, as determined by the Labor Commissioner

 

Meal allowances

Gratuities and other monetary or in-kind benefits such as commissions, piece-rate payments and contract payments

Contribution rate: The employer is required to contribute 3% of the employee’s gross monthly earnings. This percentage is applicable to all components of gross earnings and is not deducted from the employee’s wages.

 

Employer types: Employers are classified into two groups based on their employee size:

Large headquarters category: Employers with 15 or more employees

Small headquarters category: Employers with fewer than 15 employees

 

Payment methods:

Manual remittance: Contributions can be made manually by check, cash or money order. Employers must submit payments with duplicate R1/R4 remittance notices, which are completed and dated. A copy of this remittance advice is returned to the employer as proof of payment. Employers using this method are required to submit employee details semi-annually through Form II reports.

Electronic Remittance: The Employees’ Provident Fund Board has simplified the payment process by introducing e-banking. Employers can now make payments and submit employee details online 24/7 from any location. This service is available to account holders of major banks such as Bank of Sri Lanka, People’s Bank, Commercial Bank, Hatton National Bank, Sampath Bank and National Development Bank.

This is because the payment structure of the ETF is flexible and the contribution guidelines are well defined, making it easier for employers to fulfill their role and ensuring that employees are legally entitled to the contributions they are entitled to.

Deadlines and Additional Payments for ETFs

The Employees’ Provident Fund (EPF) contribution must be made by employers and should not be made later than the last working day of the month following the contribution period. It is important to meet these deadlines because if the company fails to do so, they are charged some additional amount, which, if not paid, is added over time.

 

The surcharge structure is as follows:

• 5%: for delays not exceeding 10 days

• 15%: for delays between 11 days and 1 month

• 20%: for delays between 1 month and 3 months

• 30%: for delays between 3 months and 6 months

• 40%: for delays between 6 months and 12 months

• 50%: for delays over 12 months

 

This surcharge is calculated on the total unpaid contributions, which puts significant financial strain on employers who fail to meet the deadlines. The strict penalty system also underlines the need for timely payments so that employees do not experience any delays in receiving the benefits they desire.

 

Employers must ensure that they remit ETF contributions every month so that they do not incur additional costs and remain within the law. Having both manual and electronic remittance methods is advantageous for employers as they can determine the most appropriate method they can use to remit their money, while still observing the required deadlines.

 

Claiming Process for ETF

 

ETF is different from EPF in that its members are not forced to retire before they can withdraw their balance in the fund. However, members have to fulfill certain conditions before they are allowed to withdraw their ETF balance.

 

 

Key points to consider before applying:

 

A person must have lost his/her job before he/she can apply for ETF withdrawal. Some of the reasons for termination of employment can be retirement, resignation, dismissal or leaving the job.

 

A member cannot apply for withdrawal of their ETF balance until five years have passed from the date of termination of employment, except in the following circumstances:

 

Attaining the age of 60

Moving abroad for permanent residency

Joining government service with a pension scheme

Termination of employment due to permanent disability

Death of the member

 

Steps for members eligible for withdrawal to apply:

 

Filling of application: The withdrawal application form must be filled with clear and accurate details such as the member’s name, address and bank account information.

Separate application for each job: If the member holds multiple jobs, a separate application form is required for each job.

Bank account requirement: The member must have a bank account in their name or the name of a family member.

 

Supporting documents: Attach a certified copy of the bank passbook or a bank statement containing the account holder’s name, branch, account number, address and National Identity Card (NIC) number. This document must be attested by the employer.

NIC Certificate: Provide the member with the NIC and provide a certified copy of the same.

Name discrepancies: If the member’s name is different in the application, annual membership statement, NIC or bank account, the employer must write a letter confirming that all the names belong to the same person.

Adhering to these guidelines enables a smooth and efficient withdrawal process of the ETF, hence helping members access their funds easily.

EPF and ETF in Sri Lanka: Protect your retirement today.