Summary of this article
EPFO may raise wage ceiling to Rs 25,000.
Move aims to expand pension and fund coverage.
Employers face higher costs, employees gain security.
The Employees' Provident Fund Organisation (EPFO) is planning to increase the salary cap to make it compulsory to join its pension and retirement schemes. Employees earning as much as Rs 15,000 a month are currently mandatorily required to contribute to the Employees' Provident Fund (EPF) and the Employees' Pension Scheme (EPS).
The government now proposes to raise this cap to Rs 25,000 a month. This would expand the coverage and introduce more employees from the private sector to formal social security coverage.
Current Rules For Participation
According to the rules currently in place, any worker whose salary is below Rs 15,000 a month is automatically enrolled under EPF and EPS. Both schemes are administered by EPFO. Employees on a higher basic pay have the option of opting out, as their inclusion is voluntary. Both the employer and the employee pay 12 per cent of the employee's salary every month.
The employee's share is completely credited to the EPF account, which attracts interest. The contribution of the employer is split between EPF and EPS, with 3.67 per cent credited to EPF and 8.33 per cent routed to the pension scheme.
When The Decision May Be Taken
The suggestion is expected to be discussed at the next meeting of the EPFO's Central Board of Trustees (CBT), which may be held in December or January. The CBT is the organisation's highest decision-making authority. After approval of the proposal, the change will be subject to notification to the government for implementation. The Labour Ministry hopes that raising the wage ceiling could bring more than 1 crore workers under the coverage of EPF and EPS, and comprehensively enhance social security protection.
Impact on Employees And Employers
For workers, the rise in the wage limit will translate into increased access to long-term retirement funds and pension coverage. Employees who were previously excluded on the basis of higher wages will now enjoy mandatory contributions being made on their behalf. Increased coverage will ensure that a larger part of the workforce gets to enjoy financial security after retirement.
For employers, there will be an added cost burden because they will have to contribute on more employees. There will be more administration and compliance work too, as there will be more employees to enroll in the EPFO system. Nevertheless, the step can lead to a more transparent payroll system, where salaries and deductions are well accounted for, and there is less room for evasion of wages.
The EPFO's corpus as a whole now is approximately Rs 26 lakh crore and has almost 76 million active members. The addition of more employees will result in a significant increase in overall contributions, making the overall position of the fund stronger.
