What is the Difference Between EPF and ETF?

If you are a young professional just entering the workforce, terms like Employees’ Provident Fund or EPF and Employees’ Trust Fund or ETF may often fly over your head. Oftentimes, youngsters enter their professional lives with only a vague understanding of what these terms are. What they often pay attention to is total take-home pay, forgetting that deductions are made to their salary and in a few years, they will have accumulated a valuable little fund.

Firstly, let’s take a look at what EPF and ETF mean in layman’s terms:

What is EPF (Employee Provident Fund)

EPF is a fund given by the employer to the employee at the time of retirement. Both the employer and the employee contribute to this allowance. This scheme is maintained under the Employees’ Trust Fund Organization, having first been established under the Employees’ Provident Act in 1958. This specified organization is governed by the Central Bank of Sri Lanka and the Ministry of Finance. An employer’s contribution to this EPF allowance is 12% of the basic wage and the employee’s contribution is 8% of the total earnings. Upon retirement, the employee is credited with his contribution amount as well as the amount shared by the employer.

Contributions are made to this fund on a regular basis and its main purpose is to help the employee save a part of his/her salary every month. This fund can then be used when the employee is no longer able to work or after retirement.

Employers have to remit an allowance monthly to the Central Bank. The amount is equal to 20% of an employee’s total earnings to the EPF Fund. Total earnings include salary, fees, wages, holiday expenses, cost of living allowance, food allowance, the cash value of food provided by the employer, and similar allowances. It must be remembered that this excludes overtime payments. Payments for work done by the employee during normal working hours on weekly holidays, public holidays, and Poya days shall also be considered as earnings for the contribution of the EPF allowance.

An employee is eligible for the EPF allowance from the first day of employment. It is the responsibility of the employer to enrol the employee in the EPF Fund. To be eligible for the fund, the nature of the job is irrelevant and all employees should be registered whether they are permanent, temporary, casual, apprentices, or shift workers. Employees who are working on a contract basis, piece-rate wages, commission basis, work performed basis, or any other manner are also eligible for the EPF Fund. An employer of even a single employee is legally bound to contribute towards the fund from the first day of employment.

What is ETF (Employee Trust Fund)

The ETF allowance was established under Act No 46 of 1980. The Employee Trust Fund can be seen as a long-term savings plan and it helps in the welfare, financial security, and social security of employees. It also provides financial benefits for the employee upon his/her retirement. The ETF is administered by the Employees’ Trust Fund Board, which is governed by Sri Lanka’s Ministry of Finance.

An employee is eligible for an ETF Fund from the first day of his/her employment, irrespective of whether he/she is a permanent, temporary, casual, apprentice, or shift worker. Similar to the eligibility of an EPF Fund, employees working on piece-rate wages, commission or contract basis, and work performed basis of any manner are also eligible for the fund.

Furthermore, employees who are employed in both the public and private sectors are eligible for the ETF Fund. The fund also allows migrant workers and self-employed workers to contribute to the ETF Fund on their own by obtaining membership in the Employees’ Trust Fund Board. Both the employer and the employee should contribute to this fund. An employer has to contribute an amount equal to 3% of an employee’s total earnings to the ETF Fund.

What is the Difference Between EPF and ETF?

The main differences between the ETF and EPF are that the ETF is operated under the Employee Trust Fund Board whereas an EPF is managed by the Employee Trust Fund Organization. EPF is a retirement benefits scheme for employees and an ETF is a long-term investment or a savings plan that is established by the employer to benefit employees. EPF can only be enjoyed by employees of the private and government sectors while migrant workers and those who are self-employed can obtain and benefit from the ETF.

Nevertheless, employees are entitled to both EPF and ETF during the age of retirement even if they work in government companies or non-government companies.

Points to remember

Employees can only be entitled to claim their earnings from an EPF if they have received permanent residence in Sri Lanka. Simply getting a work visa or a permit from another country will not be sufficient and such workers will not be able to claim the EPF Fund.

Claiming ETF can only be done every five years up until the last employer. Once an employee leaves their current employment, he/she can claim the 3% until that point. After that, an employee should wait five more years before attempting to make a withdrawal.

In the event an employee shifts jobs during the stipulated five-year period on the grounds of marriage, he/she can claim the funds from the previous employer but not from where he/she is currently employed. If an employee decides to withdraw whatever amount that has been saved in his/her account during this time from past employers, he/she will not be able to make another withdrawal unless the employee retires or migrates.

Author: Ashfa Anwer