Provident Fund vs Social Security Fund in Nepal: What’s the Difference
Provident Fund vsSocial Security Fund is always a choice of dilemma for every employer-employee in Nepal. For years, the EPF had been the safe haven for retirement savings amongst the workforce who get a fixed income.The EPF had been the retirement investment plan of choice for the employees earning a fixed income for decades. Then comes the Contribution-based SS Act that brought a new model. Both systems are still used in the payroll system, appointment letters, and HR interaction today. That overlap makes for a real mix up. There are some staff who think that the two funds are the same. Others think that someone has just replaced another. Both of these perspectives are incorrect.
Both schemes have a common genesis, retirement savings, but are structured differently, in terms of protection and control. It’s important for employers to be aware of those differences before signing up employees or tweaking payroll. Staff must have the same understanding prior to agreeing to transfer previous contribution(s). A bad choice may impact your income, long-term savings, ability to receive medical or accident coverage. This article outlines the mechanisms of each fund in Nepal, where the funds are going and what each side wins or loses. It also includes information on contribution rates, benefits and what steps you need to take to choose a path. Use it as an on-the-job guide to payroll, HR and personal planning.
What Is the Employees Provident Fund in Nepal?
EPF (also known as Karmachari Sanchaya Kosh) is a retirement savings scheme that has been around for a long time. The older and simpler of the two systems. There is a flat contribution fromthe employee and the employer, each month from basic salary.
The normal rate of EPF is 10 % from the employee and 10 % from the employer. This is equivalent to 20% of basic salary. The cash is deposited into the employee’s retirement account. It’s dispersed whenever the person retires or fulfills the requirements for withdrawals from the fund.
Typically, gratuity is not included in EPF. In the past, the employer paid about 8.33 percent of basic salary separately for the gratuity. If provided, medical or accident insurance was at the discretion of the employer. EPF is thus not on the protection agenda, but on the saving side.
TheSocial Security Fund (SSF) was established in accordance with the Contribution based Social Security Act, 2074. It is a government-sponsored account that offers a retirement savings and insurance-type option. It is now under the control of the private sector employers and employees.
The overall contribution rate is 31 per cent of basic salary for SSF. Employers make a 20 per cent contribution and employees make an 11 per cent contribution. In turn, the fund splits its funds among a number of heads. These include retirement savings, gratuity and a distinct portion for social security schemes.
The idea is simple. This monthly deposit is for the whole of the month and replaces multiple payments. The employers don’t now have to keep an eye on the provident fund, gratuity and insurance separately. The money is kept in the fund, the record of each worker is kept and benefits are paid.
The contribution breakdown between Provident Fund and Social Security Fund
The numbers in the headlines are very different, but the structure accounts for the difference. The majority of the SSF proceeds end up in retirement-type accounts. The additional amount is to cover protection for which EPF did not provide coverage.
Component | EPF Model | SSF Model |
Employee share | 10% | 11% (10% retirement + 1% social security tax) |
Employer provident share | 10% | 10% |
Employer gratuity | Separate, about 8.33% | 8.33% inside SSF |
Additional employer share | None | 1.67% for protection schemes |
Total employer cost | About 18.33% | 20% |
Total monthly contribution | 20% + gratuity | 31% |
Be aware of the changes for the employer. There is an extra cost of approximately 1.67 points. This slight uptick pays for medical, accident and related benefits. This adjustment is from 10 to 11 percentage points for the employee. The additional 1 per cent is a part of social security tax.
Benefits Compared: Savings Versus Protection
The primary use ofEPF is to save for retirement. It is based on merit and length of service. Generally employees are able to borrow under the rules of the fund. This versatility is a favorite among many homes.
There is a bigger safety net in SSF. Employees are eligible for medical, health and maternity benefits. Cover for insurance for accidents and disabilities included. Also included in the design are dependent family benefits and old-age protection. It’s a significant part of the government’s rationale for promoting the scheme.
Of course there are trade-offs, but, the first few commentaries noted that there was a difference between SSF and EPF in that SSF did not permit loans based on contributions. In addition, some private companies provided benefits and bonuses greater than those provided by the SSF. Staff working in these companies must make a side-by-side price comparison. The rules and facilities may have changed since these early reviews – check with the fund what they are now.
Provident Fund vs Social Security Fund for Employers: Cost and Compliance
The most significant piece of change from an employer’s perspective is administration. EPF, in this context, is a fund that the company deals with, a separate tracking of gratuity (a benefit paid at the end of an employee’s tenure) and a separate insurance arrangement. In the case of SSF, a single deposit is made for all the obligations.
The requirements are more stringent under SSF. The funds should be paid on time on a monthly basis in Nepali month. Payments late can lead to penalties of interest, and broader enforcement. All employers are required to register all workers who are eligible for employment, including part-time employees. A failure to enrol entails the company and not the employee.
The accuracy of payroll is also important. Contributions will be based on basic salary (not gross). Mismatches due to a wrong base amount will take time to correct. Numerous expanding companies now havepayroll equipment that can be utilised to compute the numbers as well as monitor deadlines effortlessly and immediately.
What Happens When a Workplace Moves to SSF?
There is a need to consider the older provident fund and gratuity arrangements of a business when it enrolls in the SSF scheme. The majority of existing balances in approved schemes or in-house funds will be transferred to the SSF structure. Simply running both of these systems for the same use is not possible.
There are other options for employees who joined the company after a certain date. Some workers were given options to transfer their EPF balance, withdraw their EPF balance or retain their EPF balance due to early amendments. For newer enrollments, the contributions are automatically split between a retirement fund and a pension fund as per later rules. You must have joined before the announcement of the new rule and be an employer.
No one says that EPF orCitizen Investment Trust balances cannot be transferred to SSF, either. If an employee is interested in being transferred, they should seek a written offer from HR. Having a history of balances in hand avoids conflicts in the future.
How to Decide Which Route Fits Your Situation
Begin with the situation of your employer. If your business is registered with SSF, you won’t have to decide on the option for the workplace. If so, the pertinent question is how you can handle your current EPF account. Be careful when looking carefully at the different transfer, withdrawal and retain options.
Then, take time to check your benefits. Total up your existing tip, health plan and/or insurance. Next, check the total against the amount offered by SSF. People with good private benefits should beware of moving. Limited cover beneficiaries benefit from SSF’s added cover.
Last but not least, consider liquidity. If you use loans against your retirement account, inquire about the allowable amounts at each of the funds today. Request the most up-to-date rules on paper. The information in policies is constantly changing and old articles may not be current practice.
Frequently Asked Questions (FAQ)
EPF is primarily a retirement savings plan. SSF is a combination of retirement savings, and protection and gratuity. It also includes one-third (33.33%) contribution in basic salary.
EPF contribution is made from 10 per cent of the employee and 10 per cent of the employer. The employee contributes 11 percent and the employer contributes 20 percent to SSF. Both are on a base level salary.
Private sector employers must participate in the SSF according to the Contribution-based Social Security Act. In some instances, older arrangements may still be in place. Ensure you have access with the fund.
Yes. Employer's SSF contribution has been made up of approximately 8.33 per cent for gratuity. This is why it is not necessary to pay a separate gratuity for enrolled staff.
Transfers may be made in certain circumstances, as per the Rules. There are eligibility requirements based on date of membership and eligibility to a particular employer. Inquire with HR regarding the procedure and documentation.
Yes. The medical, health, maternity, accident, disability and dependent benefits are part of SSF. EPF does not sell these individually.