EPFO: Big news for EPFO members. The Employees’ Provident Fund Organization (EPFO) is preparing to raise the wage ceiling for mandatory employee participation. This ceiling will apply to both the Employees’ Provident Fund (EPF) and the Employees’ Pension Scheme (EPS). Currently, this ceiling is Rs 15,000 per month. According to sources, there are plans to raise it to Rs 25,000 per month.
What are the rules now?
Currently, employees earning less than Rs 15,000 per month are required to join EPF and EPS. This is the same statutory threshold below which provident fund and pension contributions are mandatory. Employees earning a basic salary of more than Rs 15,000 have the option to opt out of these schemes. Employers are not legally obligated to enroll such employees in either the EPF or EPS.
When can the decision come?
The EPFO’s Central Board of Trustees (CBT) is likely to discuss the proposal in its next meeting, which is likely to be held in December or January. According to a Labour Ministry official, ‘If the salary limit is raised to Rs 25,000, more than 1 crore employees will be compulsorily covered under social security schemes.’
Old demand of labor organizations
Labor unions have long demanded that the wage threshold be raised. They argue that in many metropolitan areas, low- or medium-skilled workers earn more than Rs 15,000, making them ineligible for the EPFO. The new threshold will address this issue.
How much and how is the contribution made?
As per the rules, every month both the employer and the employee contribute 12% of the salary.
The entire 12% of the employee’s contribution goes into the EPF account.
The employer’s 12% is divided into two parts… 3.67% in EPF and 8.33% in EPS.
Benefit in both pension and interest
According to officials, the increase in the salary limit will significantly increase the corpus of both the EPF and EPS. This will increase retirement pensions and improve interest rates. Currently, the EPFO’s total corpus is approximately Rs 26 lakh crore. Its active membership is approximately 76 million. Financial experts say that raising the EPF salary limit from Rs 15,000 to Rs 25,000 is a significant step. This will increase social security coverage. Furthermore, India’s large workforce will receive long-term financial protection and retirement benefits.
Adil Ladha, partner, Saraf & Partners, says that if the EPFO limit is increased, companies will have to incur slightly higher statutory costs and compliance burden as they will have to make EPF contributions for more employees.
He said, “But the positive aspect of this is that it will bring transparency to companies’ payrolls. This means that employees’ actual salaries and deductions will be clearly visible. Furthermore, it will also curb companies that currently try to circumvent the rules by not including employees in the EPF.”
These employees can protest
Suzanne Talwar, co-founding partner of Economic Laws Practice, says that some employees, especially those with low or mid-level incomes, may oppose this new rule. The reason is that when the EPF limit increases, more money will be deducted from their salary for the provident fund, which will reduce their in-hand salary. He said that some employees may not like this change, even if it brings long-term benefits. These are especially those who want more money for immediate expenses.
