Using The Six Month Window To Regularise Legacy Non Compliance Under The Employees' Provident Fund Enrolment Scheme, 2025

1. Introduction

1.1 The Scheme

The Employees' Provident Funds (Amendment) Scheme, 2025, notified by the Ministry of Labour and Employment in October 2025, introduces a special, time limited compliance window for employers to voluntarily regularise past non‑compliance in respect of employees who were left out of EPF coverage between 1 July 2017 and 31 October 2025. The initiative, formally titled the Employees' Enrolment Scheme / Employees' Enrolment Campaign, 2025 (EES‑2025), runs from 1 November 2025 to 30 April 2026 and is explicitly framed as a facilitative measure to extend social security coverage and simplify regularisation of historical omissions without the punitive severity ordinarily associated with EPFO audits or enforcement action. For employers with historical gaps in EPF enrolment during the coverage period, the scheme offers a discrete, six‑month opportunity to quantify and settle liability at a capped cost. Employer contributions with interest, administrative charges and a lump sum penalty of ₹100 per establishment across EPF, EPS and EDLI rather than face open‑ended exposure to damages, prosecution and reputational fallout in the event of enforcement discovery.

From a governance perspective, EES‑2025 merits early board level and CFO attention. The 30 April 2026 deadline is hard coded into the scheme, and delays in identifying eligible employees, securing internal approvals and processing declarations heighten the risk of last minute portal congestion, errors and missed timelines. This article is aimed at CFOs, finance teams, HR heads and in‑house counsel at medium and large employers, including those currently under EPFO inquiry or audit, and sets out the scheme's mechanics, financial exposure, strategic decision making framework, practical compliance roadmap and key risks, with a particular focus on how EES‑2025 interacts with pending EPFO proceedings.

2. Scheme Mechanics And Eligibility Framework

2.1 Coverage Period And Employee Eligibility

EES‑2025 applies to employees engaged between 1 July 2017 and 31 October 2025 who were otherwise eligible for EPF but were never enrolled, whether due to misclassification, oversight or deliberate avoidance. All establishments are allowed to participate, regardless of whether they are presently covered under the EPF Act. The usual coverage thresholds relating to headcount, wage levels or nature of establishment do not constrain eligibility to opt in, so the scheme is equally open to a single location employer with one uncovered employee and to a multi‑state enterprise with hundreds. This breadth is intentional and aligns with the Government's policy objective of bringing as many hitherto uncovered workers into the organised social security net as possible.

A critical design feature is that establishments currently facing inquiries or assessments under Section 7A of the EPF Act, paragraph 26B of the EPF Scheme, 1952 or paragraph 8 of the EPS‑1995 remain eligible to use the scheme. Even an employer already under investigation for past non‑compliance can regularise eligible employees for the specified period through EES‑2025, provided declarations are filed and payments are made within the six month window, which gives such employers a tangible route to ring fence exposure on this specific issue while their broader disputes continue.

2.2 Employee Share Waiver

A distinctive feature of EES‑2025, reiterated in the EPFO FAQs, is the complete waiver of the employee's EPF contribution for the covered period where such contribution was not actually deducted from wages. In practical terms, this means that employers are not required to recover arrear employee contributions from current or former employees. If employee contributions were already deducted and remitted, no adjustment is needed, and if they were not deducted, the typical non‑compliance scenario, the employee's share is forgiven for that period and only the employer's share with interest and charges is payable. This design removes a major friction point by sparing employers the administrative and legal complexity of tracing ex-employees and negotiating retrospective deductions, while also ensuring that employees do not experience a sudden reduction in take home pay on account of past omissions.

2.3 Portal Declaration And Payment Mechanism

The scheme is implemented entirely through the EPFO's digital infrastructure. Employers wishing to opt in must first identify eligible employees and ensure that each has a Universal Account Number (UAN), which, under the current EPFO process, may be created via the UMANG application and authenticated using Aadhaar based face recognition. Once UANs are in place, the employer files an electronic challan‑cum‑return (ECR) for the relevant periods, declaring each employee's engagement dates, wages and computed contribution liability under the scheme, with the system then generating the payable amounts including employer share, interest, administrative charges and the fixed ₹100 penalty. Payments are to be made electronically, and employers are expected to track acknowledgements and closure status through the portal; given the likelihood of heavy traffic as the deadline approaches, there is a strong incentive to complete declarations and remittances well in advance of 30 April 2026.

3. Financial Exposure And Cost Analysis

3.1 Components Of Employer Obligation

The total cost of regularising an uncovered employee under EES‑2025 comprises four elements, the employer's EPF and EPS contributions for the uncovered period, interest under Section 7Q, administrative charges and the nominal penal damages. For most covered establishments, the employer's share will be 12% of wages towards EPF plus 8.33% towards EPS, translating into an effective outlay of approximately 20.33% of gross wages for the period of non-coverage. Interest at the notified rate (currently around 8.5% per annum) is payable from the original due date of each monthly contribution until the date of payment, and a standard administrative processing charge is added as per prevailing EPFO circulars. Crucially, penal damages which under Section 14B can otherwise become substantial in enforcement cases and are capped under EES‑2025 at a lump‑sum of ₹100 per establishment across all three schemes, effectively converting what would otherwise be a compounding penalty into a token compliance fee.

3.2 Key Cost Reductions Compared To Enforcement Discovery

When set against a counterfactual of enforcement triggered discovery, the scheme's financial concessions are significant. Under normal enforcement, an employer may be asked to deposit both employer's and employee's shares along with interest and substantial damages, and may face prosecution exposure for wilful default, especially where non‑compliance is prolonged. By waiving the employee share (where not deducted), capping damages at ₹100 per establishment, and providing a predictable interest regime, EES‑2025 defines the maximum liability an employer will face for the covered period and removes the tail risk of punitive outcomes, including criminal proceedings against the establishment and its officers. For many larger employers, the savings between the scheme route and a full‑blown enforcement outcome, when modelled over multiple years of uncovered service and large headcounts, will be material enough to justify the immediate cash outlay.

3.3 Interaction With Pending Inquiries

For employers already subject to 7A or related inquiries, the financial calculus must be read together with litigation strategy. On one hand, opting into EES‑2025 to regularise non‑enrolment for the 2017–2025 window can substantially reduce the quantum of contributions, interest and damages that EPFO might otherwise pursue, while also curtailing the risk of criminal proceedings on that count. On the other hand, declarations under the scheme may, as a matter of evidentiary inference, be treated as admissions that certain categories of workers ought to have been covered, which could influence the fact finding in parallel proceedings touching overlapping issues. In practice, given the capped nature of the scheme liability and the creeping risks of delay, many employers under inquiry may nevertheless find that early use of EES‑2025 to carve out and settle the non-enrolment dimension is preferable to litigating it entirely through the regular process, provided the scope of declarations is carefully defined and documented in consultation with counsel.

4. Strategic Decision‑Making Framework

4.1 The Case For Opting In

Several considerations favour early adoption of EES‑2025 for employers with identifiable coverage gaps. The scheme converts what is otherwise an uncertain, open‑ended exposure into a quantifiable obligation built around statutory contribution rates, a known interest factor and a nominal fixed penalty, enabling CFOs to model, budget and provide for the liability with reasonable precision. It eliminates the risk that a future EPFO audit or complaint will trigger full scale proceedings with higher damages, the possibility of prosecution and the reputational consequences of being publicly identified as a non‑compliant employer, including ESG and investor relations implications. Timely opt‑in also stops further interest accrual since interest under Section 7Q runs until payment and sends a positive compliance signal to EPFO, which may influence the organisation's risk profile in future interactions, especially in an environment where policy emphasis is firmly on formalisation and social‑security expansion.

4.2 When Deferral Or Non Participation May Be Considered

There will, however, be cases where immediate opt‑in is not straightforward. Employers facing acute cash flow constraints may struggle to fund a large, one time outgo, particularly if historical payroll data indicates a multi‑year exposure spanning hundreds of employees. Others may be in the midst of coverage disputes where the very status of certain workers as "employees" under the EPF Act, or the applicability of the Act to certain establishments or periods, is contested, and may worry that scheme participation could be construed as conceding those points. In addition, questions around tax treatment of back paid contributions and interest under the Income tax Act, and the potential impact on indemnity or allocation arrangements in M&A contexts, may justify a short period of deferral while opinions are obtained, though the hard stop of 30 April 2026 means such deferral must be tightly managed.

4.3 A Practical Decision Matrix For CFOs

In practice, the opt‑in decision should be structured as a matrix weighing factors such as the number of affected employees, estimated back pay and interest quantum, the presence and stage of any EPFO inquiries, current liquidity and working capital position, and the organisation's broader risk appetite. For employers with relatively small gaps say, fewer than 20 affected employees and aggregate EES‑2025 liability under a defined internal threshold, an immediate opt‑in will usually be commercially and reputationally sensible. For those with large, multi-crore exposures and live 7A proceedings, a more granular analysis is warranted, but even there, the capped penalty, employee share waiver and clear policy direction towards closing legacy gaps mean that the default presumption should be in favour of participation unless there is a strong, documented reason to hold out.

5. Practical Compliance Roadmap

Phase 1: Identification And Quantification

The first operational step is a comprehensive reconciliation exercise covering the period from 1 July 2017 to 31 October 2025. HR and payroll teams should extract complete employee lists from HRIS and payroll systems for the period, cross reference these against EPFO filings (monthly ECRs and related returns), and generate a list of individuals who appear on payroll but not in EPFO records. For each such individual, the employer should document engagement dates, employment status (direct, contractual, fixed‑term), wage history and any prior EPF coverage elsewhere, and then compute the potential employer contribution and interest exposure under EES‑2025 using standard rates. Where records are incomplete particularly for SMEs or establishments that migrated systems, additional reconstruction from bank statements, TDS data and income tax records may be necessary, and, if gaps remain, an explanatory note or affidavit documenting the reconstruction methodology should be prepared for the file

Phase 2: Board Decision And Allocation Of Responsibility

Once a first‑cut quantification is ready, the findings should be presented to the CFO, CEO and, ideally, the board or audit committee, together with scenario analyses contrasting EES‑2025 participation with the "do nothing and risk enforcement" option. A formal board resolution or senior management approval should authorise scheme participation (with a cap on aggregate outlay), allocate responsibility across functions, finance for reconciliation and funding, HR for data and employee communication, legal for interactions with EPFO and alignment with ongoing inquiries and set internal timelines that back‑calculate from the 30 April 2026 deadline to avoid last minute congestion. In parallel, in‑house counsel should align external advisors and, where necessary, obtain focused opinions on points such as interaction with ongoing litigation, tax deductibility and contractual allocation of historic liabilities in group structures.

Phase 3: Portal Enrolment And Documentation

Execution then shifts to the EPFO portal. Employers should prioritise creating or validating UANs for all identified employees, resolving any Aadhaar or KYC mismatches, and then prepare the electronic challan‑cum‑returns for each relevant month and employee, ensuring that declared wages and dates align with internal records. Submissions are best staggered over the six‑month period rather than bunched towards the end, both to ease internal workload and to reduce the risk of portal slowdowns. Contemporaneously, all supporting records, employment contracts, wage slips, attendance data, contractor agreements should be collated and stored in an indexed manner in anticipation of any subsequent verification or audit. Each submission and payment acknowledgement should be archived centrally, with a running dashboard maintained for management tracking of coverage, amounts paid and remaining exposure.

Phase 4: Payment, Closure And Post‑Scheme Controls

As batches of declarations are processed, finance teams must arrange timely payment of the amounts indicated in the ECRs, verify that receipts and status updates appear correctly on the EPFO portal, and seek written confirmation of closure, where available, once all declared employees and periods have been regularised. Upon completion, HR and payroll master data should be updated to reflect EPF enrolment status, and any employees who remain on the rolls but outside EPF coverage for valid reasons (e.g., wage‑linked exclusions) should be clearly identified and documented. Post scheme, employers should embed stronger internal controls, monthly reconciliations between payroll and ECR filings, periodic gap audits, training for HR and payroll on enrolment obligations, and tighter governance over outsourcing and contractor arrangements to prevent recurrence of the same non‑compliance patterns that necessitated EES‑2025 participation.

6. Documentation, Governance And Interaction With EPFO Inquiries

6.1 Building An Evidentiary Trail

Given the possibility of future EPFO scrutiny, a well curated documentation set is essential. Employers should maintain board and committee minutes approving scheme participation, working papers on identification and quantification of uncovered employees, detailed calculation sheets showing contribution and interest computations, copies of all ECRs and challans filed under EES‑2025, payment proofs, and any correspondence with EPFO or external counsel concerning the scheme. This internal "defence file" will be critical in demonstrating good‑faith compliance and explaining why certain employees or periods were included or excluded if questions arise in subsequent inspections or disputes.

6.2 Aligning Participation With Pending Investigations

For establishments already subject to Section 7A or related proceedings, strategic alignment between EES‑2025 participation and inquiry management is important. Regularising uncovered employees for the 2017–2025 period under the scheme should, in principle, narrow the scope of such proceedings by taking one category of non‑compliance off the table, but employers must be careful that declarations are framed so as not to inadvertently concede contested issues beyond that. In some cases, it may be prudent to communicate with the inquiry officer or regional EPFO office, through counsel, to clarify how EES‑2025 participation will be treated in the pending matter, while ensuring that any such communication is neutral in tone and confined to procedural coordination rather than substantive admissions.

6.3 Employee And Contractor Communication

On the employee side, HR should plan measured communications explaining that the organisation is enrolling previously uncovered staff under EPF pursuant to a government scheme that waives past employee share contributions and that employees will now contribute prospectively and enjoy EPF benefits going forward. For contractor supplied manpower, principal employers should use EES‑2025 as a trigger to revisit service agreements, making EPF compliance an explicit contractual obligation, demanding stronger documentation of contractor EPF payments and considering contractual remedies where chronic non‑compliance is discovered. Thoughtful communication reduces the risk of grievances or misunderstandings and reinforces the organisation's positioning as proactively regularising and strengthening social security compliance.

7. Sectoral And Structural Considerations

7.1 Multi‑State And Multi‑Establishment Employers

Employers operating across multiple states or with multiple EPF code numbers will need to undertake establishment wise analysis, since EPF obligations are establishment linked and EES‑2025 declarations must map correctly to each code. Particular care is needed where some units fall under state specific provident fund schemes or where historical restructurings, mergers or spin‑offs have changed establishment identities, as this may affect which entity is the legally correct declarant for a particular period and group of employees. A central tracking tool that consolidates establishment wise exposure and declaration status can help avoid inadvertent omissions and provide a holistic view for management and auditors.

7.2 SMEs And Documentation Challenges

Small and medium enterprises often face greater challenges in reconstructing historical payroll and EPF data, especially where manual systems were used or where there have been changes in ERP or outsourcing vendors over the years. For such entities, it may be necessary to rely more heavily on indirect evidence such as bank payment files, TDS returns and GST filings to estimate wages and identify uncovered employees, documenting the methodology transparently in case of later queries. Starting early in the EES‑2025 window is particularly important for SMEs, as they may need more time to assemble records, consult advisors and secure funding than larger, better‑resourced organisations.

7.3 High Turnover, Contracting And Platform Models

In sectors characterised by high turnover, extensive contracting or platform based work arrangements, the threshold question of who is an "employee" for EPF purposes will remain sensitive. While EES‑2025 applies only to employees within the statutory definition, organisations will need to carefully review the classification of gig workers, consultants and independent contractors to avoid either under declaring persons who might be re-characterised as employees or over declaring genuinely independent service providers. In borderline cases, targeted legal advice can help determine an appropriate approach, balancing the benefits of certainty under the scheme against the risk of setting precedents that could affect future classification disputes.

8. Key Risks And Mitigation Strategies

8.1 Portal, Process And Data Risks

On the operational side, risks associated with portal performance, UAN creation and data quality are real. Experience from earlier EPFO campaigns suggests that Aadhaar based face authentication and UAN generation can be time consuming where employees are uncooperative, remotely located or have inconsistent documentation, and that the EPFO portal can slow down near major deadlines. Early initiation of UAN creation, data validation and trial ECR runs, coupled with internal QA checks on employee identifiers and wage histories, will mitigate reject rates and process friction, especially in large organisations with complex workforces.

8.2 Regulatory And Legal Risks

Regulatory risks include the possibility that EPFO may later challenge the inclusion or exclusion of certain employees (e.g., on the basis of wage thresholds or employment status), or may seek to leverage scheme declarations to support broader coverage assertions outside the EES‑2025 period. While the scheme circulars and FAQs provide a framework, they do not fully codify how all edge cases will be treated, and employers should therefore document their eligibility assessments and, where necessary, seek pre‑submission clarifications or legal opinions on doubtful categories. Proactively engaging with these issues reduces the likelihood of unpleasant surprises in later audits and strengthens the organisation's ability to demonstrate that its use of the scheme was principled rather than opportunistic.

8.3 Post Scheme Enforcement Environment

Finally, employers should assume that once EES‑2025 closes, EPFO will intensify enforcement efforts, particularly towards establishments that had visible coverage gaps but chose not to participate. Public communications around the scheme emphasise that it is a one-time window, and subsequent audits are likely to measure employers not only against the statutory baseline but also against the opportunity they had to regularise voluntarily. Against this backdrop, using the six‑month EES‑2025 window to address legacy non‑compliance, even if imperfectly, may materially improve an organisation's risk posture in the post scheme environment relative to peers that continue to carry historic EPF skeletons in their closets.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.