PF: Big news for PF account holders. Employees who are currently employed understand the significance of the Employees’ Provident Fund (EPF). Recently, the Narendra Modi government has made a decision after 12 years regarding the EPF, which is expected to benefit numerous employees. Let’s delve into the details of the government’s decision and its advantages.

What is the decision?

The Union Cabinet, led by Prime Minister Narendra Modi, has agreed to increase the salary threshold for mandatory social security benefits provided by the Employees’ Provident Fund Organization (EPFO) from Rs 15,000 to Rs 25,000 per month. This means that now employees with a basic salary up to Rs 25,000 will be entitled to social security benefits.

What is meant by social security?

Social security in this context refers to the Employees Provident Fund (EPF), Employees Pension Scheme (EPS), and EPFO’s insurance protection scheme. Previously, companies with 20 or more employees were required to include employees earning a basic salary up to Rs 15,000 in the EPF and EPS schemes. However, with the new limit, employees earning between Rs 15,000 and Rs 25,000 will now be obligated to join these schemes.

How will it impact the employee?

For instance, if an employee like Ashish has a basic salary of Rs 20,000, currently excluded from mandatory EPF and EPS coverage due to the Rs 15,000 limit, will now be required to contribute once the new Rs 25,000 limit is implemented. This change may also affect the take-home salary of employees falling within the Rs 15,000 to Rs 25,000 basic salary range.

Will the take-home salary be affected?

Employees with a basic salary between Rs 15,000 and Rs 25,000 might see a slight decrease in their take-home pay as contributions towards PF will become mandatory. For example, an employee with a Rs 25,000 basic salary would contribute around Rs 3,000 monthly towards PF, impacting their take-home salary.

How much contribution does the employee and the company make?

Typically, employees contribute 12% of their basic salary to the EPF, matched by a 12% contribution from the company. The company’s contribution is divided, with 8.33% going to the EPS and the remaining 3.67% to the EPF.

 

Impact of the decision

This decision is anticipated to extend social security coverage to over 5.1 million additional employees, incurring an estimated annual cost of Rs 11,339 crore. Over five years, this change is expected to cost around Rs 56,696 crore. Companies will also face increased expenses as they will have to contribute to more employees’ PF accounts, potentially raising their overall payroll costs.

 Change after 12 years

This adjustment in the salary limit comes after a 12-year period. It aims to provide provident fund, pension, and insurance benefits to a larger group of employees. Notably, the EPFO’s salary limit had remained unchanged from 2004 to 2014, and was then raised to Rs 15,000 in September 2014.