Good news for over 8 crore subscribers enrolled under the Employee’s Provident Fund Organisation (EPFO)! The retirement fund body may hike the wage ceiling for mandatory PF contribution by members from Rs 15,000 to Rs 25,000, according to a report by the Economic Times. The government last revised the EPFO wage ceiling for mandatory contribution in 2014, when it hiked the limit from Rs 6,500 to Rs 15,000.
Various labour unions and employees’ representative bodies have been demanding the revision for years citing rising inflationary pressure and inadequate pension amount under the EPS scheme. At present, retirees under the EPS-95 are receiving a minimum pension of Rs 1,000. Labour unions are seeking a minimum Rs 5,000 in pension from EPS.
As regards Rs 15,000 wage ceiling under the EPFO, employees’ argument is that putting this kind of a cap is leading to lakhs of employees getting excluded from formal retirement benefits.
Recently during the Winter Session of Parliament in December, the government was asked by a member of parliament about its plan to revise the EPFO wage ceiling for mandatory contribution. Replying to the query, Union Labour and Employment Minister Mansukh Mandaviya said any revision in the ceiling “is based on stakeholder consultations with unions and industry bodies” because such a change affects both take-home pay for workers and employer hiring.
How does EPF and EPS contributions calculated?
The employee working in the organized sector needs to deposit 12% of his basic salary into his EPF account. The amount is matched by the employer but the 12% gets divided into EPF and pension contribution. From employer’s contribution, only 3.67% is deposited into the employee’s provident fund account while the rest 8.33% goes into the Employee’s Pension Scheme (EPS) account.
So if the government decides to raise the ceiling for mandatory contribution under the EPFO from Rs 15,000 to Rs 25,000, it only not only raise the retirement corpus for employees but also their pension amount (currently minimum Rs 1,000) post retirement.
Why the centre is reconsidering the wage ceiling hike proposal under EPFO
The government has acknowledged the fact that the demand is long overdue and the current structure leaves many employees without any pension cover.
The government somewhere understands that private-sector employees earning slightly above Rs 15,000 are not enrolled in any pension scheme and may later become financially dependent in old age. Under today’s rules, EPF enrolment is mandatory only up to Rs 15,000 salary. Workers earning above it can opt out, and employers are not legally required to register them.