New Delhi, Sept. 21 -- The government has raised the wage ceiling for mandatory coverage under the Employees' Provident Fund Organisation (EPFO) from Rs.15,000 to Rs.25,000 a month, bringing a larger group of employees under the statutory social security framework. The change took effect from September 17 and is expected to bring more than 51 lakh additional employees under mandatory EPFO coverage.
The revision primarily affects employees joining EPFO-covered establishments for the first time. Previously, new employees earning more than Rs.15,000 a month were not automatically covered under the EPF and Employees' Pension Scheme (EPS). With the ceiling now at Rs.25,000, new employees earning between Rs.15,000 and Rs.25,000 will come under mandatory coverage, subject to the applicable rules.
What happens if you earn Rs.10,000?
Employees earning Rs.10,000 a month will see no change because they were already covered under the applicable EPFO rules. The new decision only raises the upper wage limit for mandatory coverage from Rs.15,000 to Rs.25,000.
What happens if you earn Rs.20,000?
Employees earning Rs.20,000 a month are among those most directly affected by the change. Under the earlier ceiling, a new worker earning Rs.20,000 was above the statutory limit and was not automatically enrolled. Under the revised ceiling, the same worker will fall within mandatory EPFO coverage when joining an establishment covered by the scheme.
Such employees will become eligible for provident fund savings, pension benefits under EPS and insurance protection through the Employees' Deposit Linked Insurance Scheme (EDLI), subject to the applicable provisions.
What if you earn more than Rs.25,000?
The impact is different for employees already contributing to EPFO whose contributions are capped at the statutory wage ceiling. Under the earlier Rs.15,000 ceiling, the maximum employee contribution at 12% was Rs.1,800 a month. With the ceiling now raised to Rs.25,000, the corresponding maximum contribution becomes Rs.3,000 a month.
This means the employee's monthly PF deduction could increase by up to Rs.1,200, reducing take-home pay by the same amount while increasing the amount being saved towards retirement.
The employer contribution is also linked to the revised ceiling. Under the new framework, both employee and employer contributions are calculated at 12% within the applicable wage ceiling. For an employee earning Rs.25,000, the additional employer contribution has been estimated at Rs.600 a month compared with the earlier ceiling.
Why was the EPFO ceiling increased?
The Rs.15,000 wage ceiling had remained unchanged since September 2014. The government said the revision was necessary because wages, minimum wages and formal employment levels have increased significantly over the past 12 years. The average income of a regular salaried employee is now around Rs.23,000 a month, according to a government official cited in the report.
The government estimates that the expansion will increase its annual financial commitment to EPFO to around Rs.11,339 crore, compared with approximately Rs.10,250 crore currently. The estimated expenditure over five years is about Rs.56,696 crore.
The EPFO currently has around 7.98 crore contributing members across approximately 7.68 lakh contributing establishments. The government expects the higher wage ceiling to expand access to provident fund savings, pension and insurance protection for workers who were previously outside mandatory coverage.
Overall, the change mainly benefits new employees earning between Rs.15,000 and Rs.25,000 by bringing them into mandatory social-security coverage. For employees earning above Rs.25,000 who are subject to the statutory contribution cap, the change could instead mean a higher monthly PF deduction and a corresponding increase in retirement savings.
Published by HT Digital Content Services with permission from Millennium Post.