· 3 min read
By Correct Editorial — Compliance Research Desk
Decoding the Employees Provident Fund Scheme for MSMEs
Published on: April 30, 2025
Micro, Small and Medium Enterprises (MSMEs) play a crucial role in the Indian economy, contributing roughly 27% to the Gross Domestic Product (GDP). With more than 6 crore units generating 11 crore jobs, MSMEs are instrumental in fostering entrepreneurship and employment, often bringing the benefits of industrialisation to rural and backward areas.
At the same time, MSMEs are subject to a host of regulatory obligations, especially as they expand in size and operations. This article explores the compliance requirements applicable to MSMEs under the Employees’ Provident Fund Scheme (EPFS).
What is EPFS?
The Employees’ Provident Fund Scheme is a social security initiative under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. Operated at the Union level, the scheme is uniformly applicable across all Indian states.
Its primary objective is to promote saving habits among salaried individuals for retirement. Both the employee and employer contribute an equal percentage of the employee's salary to the provident fund account. On retirement, the employee receives a lump sum amount, which includes contributions from both parties along with accumulated interest.
Are There Other Related Schemes?
Yes. Apart from EPFS, the Act also provides:
- Employees’ Pension Scheme (EPS) – for superannuation, retirement, or disablement pension
- Employees’ Deposit-Linked Insurance Scheme (EDLIS) – for life insurance benefits
All three are managed by the Employees’ Provident Fund Organisation (EPFO), a statutory body under the Ministry of Labour and Employment.
Does It Apply to MSMEs?
Yes. The Act is applicable to any establishment employing 20 or more individuals. Therefore, any MSME with 20+ employees is mandatorily required to make contributions under EPFS, EPS, and EDLIS.
What Is the Contribution to Be Made?
- Employee: 12% of basic salary → Entire amount goes to EPFS
- Employer: 12% of basic salary → Split as follows:
- 3.67% to EPFS
- 8.33% to EPS
In addition, the employer must contribute:
- 0.5% towards EDLIS
- 0.5% towards administrative charges
What Are the Compliances Involved?
1. Registration with EPFO
- Must register within 1 month of reaching 20 employees
- Registration is online via the EPFO portal
- Required details include:
- Establishment name and address
- Incorporation date and PAN
- Udyam Registration details
- Factory license (if applicable)
2. Filing of Forms
Many forms can be submitted online, such as:
- Form 5 – Return of employees qualifying for membership
- Form 5A – Particulars of ownership
- Form 6A – Annual contribution statement
- Form 10 – Exit return
- Form 12A – Contribution statement
- Form 13 – EPF account transfer application
- Form 19 – Final settlement claim
Some forms still require physical maintenance:
- Form 11 – Declaration by new employees
3. Other Employer Responsibilities
- Monthly return in Electronic Challan cum Return (ECR) format
- Submission of employee entry/exit details
- Aadhar and KYC document approvals
- Timely settlement of EPF claims via portal
- Display EPF rules on notice board (in the majority language)
What Are the Consequences of Non-Compliance?
- False Statements: Up to 1 year imprisonment and/or ₹5,000 fine
- Non-payment of dues: Up to 3 years imprisonment and ₹10,000 fine
- Other contraventions: Up to 6 months imprisonment and ₹5,000 fine
Are There Any Relaxations for MSMEs?
Currently, no specific relaxations exist under the Act exclusively for MSMEs. However, temporary benefits may be announced during economic downturns or crises.
For instance, in March 2020, the government paid 24% EPF contributions (both employer + employee) for MSMEs for three months as a pandemic relief measure.
It remains to be seen whether further support will be extended to MSMEs in light of ongoing post-pandemic challenges.