While around 33,000 members from private enterprises and NGOs have registered for the PPF with the RICBL, only about 11,000 accounts are active as of now
The inability of the private sector to retain their employees for a longer period and employees leaving jobs frequently have been the biggest hurdle for them to institute the Private Provident Fund (PPF) and gratuity schemes as mandated by the Ministry of Labour and Human Resources (MoLHR).
However, the labor ministry continues to notify frequently that an employee in all the enterprises in the private sector must be entitled to the PPF and gratuity upon retirement from the service as per the Labour and Employment Act of Bhutan, 2007.
The notification also requests the private sector to participate in the PPF schemes either with the Royal Insurance Cooperation of Bhutan (RICBL) or Bhutan Insurance Limited (BIL) and also urges to activate the accounts that are left inactive.
RICBL’s Head of Financial Security and Services, Sonam Kesang said the PPF is a form of social safety net into which the employee and employer each contributes a minimum of 5% of an employee’s monthly salary.
She added that an employee can also contribute more depending upon their paying capacity (In certain cases, the employees can have the option of initiating the contribution without the equal contribution of the employer as per the type of employment).
“Most of the enterprises and employees contribute 5% as mandated by the law, however, only the Non-Governmental Organizations contribute high,” said Sonam Kesang, adding that the PPF scheme can benefit an individual with a risk-free return of 7% per annum and one can also avail a loan up to 70% of the total PPF accumulated.
Similarly, BIL provides a risk-free return of 6% to 7% and one can avail loans up to 95% of the PPF accumulated.
In five years from the day of the PPF contribution, employees are entitled to withdraw 50% of the contribution in times of emergency, explained Sonam Kesang. Most of the companies has availed the five years term, implying that below 5 years is entitled for 50% of contribution and after 5 years, entitled for 100% of the total accumulated PPF.
An official from BIL said that the internal norms of the registered member organizations govern on entitlements of the PPF refunds (whether full or partial) with the interest accumulations to employees in case of separation.
While RICBL records show about 33,000 members from private enterprises and NGOs have registered for the PPF, only about 11,000 accounts are active as of now.
Similarly, about 4,000 PPF accounts and about 40 to 50 gratuity fund accounts are maintained with BIL.
“With the pandemic, the PPF business has been impacted because many private enterprises have laid-off their employees,” Sonam Kesang said, adding that if the insurance company do not get a payable contribution for a month, the account becomes inactive.
The major challenges, according to Sonam Kesang, are frequent change in the members of the PPF in private enterprises because employee hops from one job to another and discontinuity of remittance leaving the PPF account inactive.
Coming to gratuity, Sonam Kesang said only a handful of private enterprises has availed the scheme because they focus on the PPF scheme.
RICBL is reviewing the interest rate soon on gratuity scheme. It presently receives an interest of 8% per annum.
An official from BIL said a lumpsum amount deposited by the employers in the insurance companies, a gratuity gets an average interest return of 7% annually.
While such schemes would inculcate indirect savings, Sonam Kesang, however, said Bhutanese have a poor habit of savings. “The private enterprises are availing the schemes because of the requirement of the law. On the other hand, if it was not, they would have not opted for,” she added.
Meanwhile, the proprietor of the Advance Institute for Tourism (AIT), Rinchen Khandu said, “It is very difficult in the private sector to provide PPF and gratuity as employees do not serve for longer duration leaving after three months or a year.” The AIT has not started the PPF scheme yet but plans to initiate the scheme.
“The private sector faces problems in retaining employees unlike the government,” he added.
He said that in place of the PPF and gratuity, the company provides high salary and yearly increment schemes to hold their employees back.
“As per the labor ministry’s notification, we have to follow the rules and regulations, but it is practically not going to work as it is borrowed ideas initiated in developed countries,” said Rinchen Khandu, adding that if a company does not follow, the ministry would revoke their license and they cannot run the institute, which is against the labor ministry’s policy to create jobs.
The proprietor of the Rigsum Institute of Technical Education and Management, Tenzin Dorji said the PPF scheme is beneficial for those enterprises if they can retain their employees for longer duration, otherwise it is loss of resources.
Tenzin Dorji’s company started the PPF scheme in 2000 and staff can claim the PPF after three years. However, no employee has claimed for gratuity until now, which requires 10 years of service.
Bhutan Engineering Company Private Limited has both the PPF and gratuity scheme. Its proprietor, Lav Rai said it is beneficial for the welfare of the staffs and other private enterprises should incorporate it.
Bhutan Elite Security Services has no problem with the PPF and gratuity scheme as the management briefs the staffs on their pros and cons. However, its proprietor, Dendup Tshering said if a staff absconds the company, he/she is not entitled to the benefits.
Meanwhile, the labor ministry has also notified that it would carry out strict monitoring and if any firm were found not complying, the provisions of the Labour and Employment Act of Bhutan, 2007 would apply.
Thukten Zangpo from Thimphu