Proposed Revision In Employees PF Limit May Not Be A Blessing For All – The rationale behind the proposed rise
Per the present regulations, any organization with over twenty employees is required to register with the Employees Provident Fund Organization (EPFO), and the Employees’ Pension Scheme 1995 (EPS-95) is mandatory for all employees earning less than ₹15,000. But what about the organized sector workers whose salaries are more than ₹15,000 per month and are not mandatorily covered under the EPS-95? For instance, if an employee’s income at the time of joining is less than ₹15,000 but is later increased to more than 15,000 while they are still in service, they automatically get added to the provident fund members list, but anyone with a salary of more than ₹15,000 gets left out and receives lower pensions.
However now, this proposed increase in the wage ceiling will also cover employees who were previously excluded from the retirement plan due to higher salaries and will also make them eligible now. This recommended increase in the wage ceiling from ₹15,000 to ₹21,000 will bring more workers into the pension scheme while also bringing the wage ceiling in line with the other social security plan, Employees’ State Insurance Corporation (ESIC), which already has a limit of ₹21,000 in place, raised in 2017 from ₹15,000.
Proposed Revision In Employees PF Limit May Not Be A Blessing For All – The ramifications of this wage-ceiling increase
It is worth noting that the most recent change to the EPFO wage ceiling was in 2014 when the limit was raised from ₹6,500 to ₹15,000, and this new pay ceiling will prove to be greatly beneficial to employees, especially because so many more employees in the organized sector will now be covered by the Employees’ Pension Scheme 1995 if this recommendation goes through. EPFO board members have also recommended that the Central Government take its time before implementing the revision at a later phase after giving due consideration to all the implications of such a move, even though this will be a relief for those employers that are hesitant to take on this additional financial load on top of the financial weight of the pandemic outbreak. There is likely to be a further protest from the employers since this would mean substantial stress on their balance sheets since most organizations haven’t yet been able to dig themselves out of the whole pandemic put them in. This will also be a relief for the government, as it currently spends approximately ₹6,750 crores on the contribution to the EPFO’s Employees’ Pension Scheme and this suggested increase could raise the outflow by an estimated 50% more. This is also, why a similar raise was rejected because it would have significantly increased the burden on the Centre as they currently contribute 1.16% of the total basic wages of the EPFO subscribers towards the EPS-95.
Karma Comments
An announcement on this subject is expected soon. Because the required approval from the Finance Ministry is still pending, the actual implementation may take some time longer. Although this increase may be a burden on organizations as well as the Centre, it will undoubtedly be a boon for the additional 10 million employees who will now be covered under EPF and receive all of the benefits under the three schemes run by the Employees’ Provident Fund Organisation, namely provident fund, pension, and insurance. But, at Karma, we’re particularly interested in how the employers’ fraternity reacts to this raise, and whether they have any more cards to play that could prevent it from being implemented? As mentioned above, they already succeeded once in preventing such a raise when the EPFO had proposed to raise this wage ceiling to ₹25,000. This time, perhaps, the circumstances are even direr. Fresh off the bat after surviving the COVID-19 pandemic, they’re bound to protest. How much of their protests will be heard is the key issue, which only time will tell.
For a more in-depth discussion of how this issue may affect your business, please contact Karma Management Global Consulting Solutions Pvt. Ltd.