Divya Baweja, Preeti Gupta and Sahil Bhasin

The globalisation of the economy and development of international trade and business has considerably increased the international movement of individuals across geographies. The existence of differing regimes in various countries often plays an important role when it comes to cross-border movement of employees or independent workers.

While cross-border issues arise in the areas of tax, immigration and social security, of late, social security issues too have been gaining importance as they relate to the retirement benefits of the individual venturing beyond borders for employment.

Till 2008, foreign nationals exercising employment in India were not covered under the Provident Fund (PF) regulations, since PF contributions were not mandatory where the employees’ pay exceeded the wage ceiling. On the contrary, Indian nationals working abroad were required to contribute to the social security scheme of the respective country. However, these contributions were generally lost due to limited tenure overseas or in failing to fulfill the minimum qualifying period of contribution or residence

In order to eliminate the undue advantage foreign nationals had while exercising employment in India, and to create a level playing field for Indians embarking on work outside India, the government of India in October 2008 introduced special provisions in the Provident Fund and Pension Scheme, to define a new category of workers called ‘International Worker’ (IW).

IW covers foreign nationals working in an establishment in India which is mandatorily required to contribute to provident fund. As a consequence, every eligible IW was required to be enrolled in the schemes with effect from 1 November 2008. This enabled India to bring to the table other countries which had a significant inbound population into India, to negotiate Social Security Agreements (SSA) with such countries.

SSA is a bilateral agreement between India and a foreign country designed to protect the interests of cross border workers. The agreement provides for avoidance of ‘double coverage’ and ensures equality of treatment to workers of both countries from a social security perspective.

India, has over the period, signed and made operational 18 SSAs with other countries. Generally benefits such as detachment, exportability of pension, totalisation of benefits and withdrawal of social security benefits are available under these SSAs.

Under detachment or elimination of dual contribution, employees moving on employment to any SSA country are exempt from making social security contributions in the host country for a specified period (specific to each SSA), provided they continue to make social security contributions in their home countries. The said benefit can be claimed by obtaining a ‘Certificate of Coverage’ (CoC) from the home social security authorities and submitting the same with the social security authorities of the host country.

Further, under the Exportability of Pension clause, the employees may choose to receive benefits of social security in their home country or any other country where they are currently residing (subject to the respective SSA) without any reduction of those benefits, i.e. benefits can be exported.

Under the Totalization of Benefits clause, the period of service rendered by an employee in the host country is to be counted for checking the “eligibility” of social security payment in the home country and vice-versa. However, the payment is restricted to the length of service in that country on a pro-rata basis.

It may be noted that withdrawal of PF and pension benefits is allowed only once the employee attains the age of 58 years (for non-SSA countries) or depending upon the conditions stipulated in the respective SSA (if any). Hence, in respect of an IW from an SSA country, withdrawal of PF and pension contributions is permissible upon ceasing to be an employee of a covered establishment, subject to meeting of the required criteria.

While SSAs are directed towards easing cross-border social security complexities, there are still a few issues and challenges which require attention to maximise benefits from these bilateral agreements. Also since, different SSAs have different terms and requirements, the terms of each SSA needs to be looked at closely so as to reap maximum advantage.

Although there are some practical challenges, the PF authorities have been constantly coming out with clarifications in support of the successful implementation of the SSAs. The increase in coverage of countries under the bilateral agreements combined with proper implementation, creates significant benefits for the mobile population, with their employers and hence, is a step in the right direction.