NEW DELHI: The government on Wednesday approved raising the wage ceiling for mandatory coverage under the Employees’ Provident Fund Organisation (EPFO) to Rs 25,000 per month from the existing Rs 15,000. The move is expected to bring more than 51 lakh additional employees under the social security system.
Till now, a person joining a new job with a monthly wage above Rs 15,000 was not automatically required to be covered under EPFO.
With the new ceiling, employees earning up to Rs 25,000 a month will come under mandatory EPFO coverage, subject to applicable rules. With this, workers will get access to provident fund savings, pension benefits and insurance cover.
A higher wage ceiling also means the employer will have to contribute a higher amount towards PF and pension contribution of the employee. Usually, an employer contributes 12% of the wage ceiling towards the employee’s PF account. With a higher wage ceiling, the employer’s contribution will increase. On the flip side, an employee’s take-home salary will reduce.
The wage ceiling was last hiked to `15,000 in September 2014. The government said the latest increase takes into account the rise in wages and incomes and the expansion of formal employment over the past 12 years.
The annual government expenditure on the expanded coverage is estimated at around Rs 11,339 crore, compared with the existing annual budgetary support of about Rs 10,250 crore. Estimated expenditure in five years is around Rs 56,696 crore.
According to Puneet Gupta, Partner, People Advisory Services-Tax, EY India, the increase in the EPF wage ceiling “will have a direct cost implication for employers through higher PF, pension contributions.”
Higher employee share
Wage ceiling up to Rs 25,000 per month from Rs 15,000
A higher wage ceiling means employer will have to contribute a higher amount towards PF and pension contribution of employee
On the flip side, an employee’s take-home salary will reduce
Hike accounts for rise in wages and expansion of formal jobs