EPFO Update: The Indian Union Labour and Employment Ministry has issued a clarification on the Employees’ Provident Fund Organization that employer and employee contributions to the provident fund in excess of the statutory monthly wage ceiling of Rs. 15,000 are voluntary.
EPFO Update: Will Your In-Hand Salary Reduce?
The Labour Ministry has clarified that both employer and the employee will remain capped at 12 percent on Rs. 15,000 each unless the employee voluntarily agrees to contribute more.
However, changes in salary structure such as calculation of provident fund on the full revised wage instead of the Rs. 15,000 limit may translate to higher PF deductions and retirement savings, which can reduce the take-home pay.
EPFO Update: Why Did This Change Happen?
The Union Government made the change under Code 3 – The Code on Social Security, 2020 to ensure consistency. It replaces the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.
Earlier, companies used to structure salaries differently to keep basic pay low reducing provident fund, gratuity and pension. The new definition will make companies maintain a balance while ensuring that social security benefits are fairly calculated. Under the new regulations, the extra portion must be transferred back by employers to “wages” for statutory calculations if allowances exceed 50 percent of the employee’s total salary.
For years, labour unions have been demanding that the statutory limit of Rs. 15,000 be revised upward so higher social security benefits can be enjoyed by employees. In 2014, the ceiling was last revised when it was increased from Rs. 6,500 to Rs. 15,000.
