PF contribution may be cut to fatten your wallet

Employees may expect a better take home salary in the near future as the Labour Ministry has proposed decreasing the mandatory rate of contribution toward provident fund savings from 12% to 10% of the income.

Central trade unions, however, are set to strongly oppose the proposal which will be discussed in the Employees Provident Fund Organisation (EPFO)’s central board of trustees (CBT) meeting, chaired by Labour Minister Bandaru Dattatreya, to be held on Saturday in Pune.

“The social security contribution rate affects the institutional environment and labour market efficiency. It has an impact on the carry home pay of the employees,” the meeting’s agenda papers said. “Lowering the rate of contribution may facilitate widening the coverage of all employees, as a lower social security contribution rate reduces the incentive for evasion. Even employees may wilfully become a party to evasion if the social security contribution is very high.”

Compulsory saving

At present, 24% of a formal sector worker’s salary is deducted — with 12% counted as employer’s share and 12% as employee’s contribution — toward Employees’ Provident Fund savings. This is compulsory for employees earning Rs. 15,000 a month.

The EPFO’s central board of trustees will consider a proposal to lower “the rate of contribution to be paid by the employer and an equal contribution by employees from the present 12% to 10% by the issue of an appropriate order by the Central Government.”

The Employees’ Provident Fund and Miscellaneous Provisions Act 1952 empower the Centre to lower the contribution rate toward EPFO schemes and the Government intends to issue a notification to effect the change.

The move comes following a directive from the Labour Ministry to EPFO on April 28. “…There have been demands from various quarters on many occasions to review the present rate of EPF contribution and place it on par with other social security schemes such as National Pension System (NPS),” the Labour Ministry’s letter said.

The EPFO said that employees who intended to make higher savings could still do so by availing the option of voluntary provident fund contribution allowed under the present law.

The Labour Ministry also said that government employees contributed less toward their social security schemes compared to EPF schemes which were applicable to private sector workers only. For instance, under the New Pension System and Contributory Provident Fund, equal contribution of 10% of income is made by employers and employees.

Union opposition

The RSS-affiliated Bharatiya Mazdoor Sangh (BMS), which has not participated in nationwide strikes organised by central trade unions in the last two years, is threatening to go on a strike this time.

“The government is benefiting the corporate businessmen by hurting the interests of millions of workers. We will go for a nationwide strike if the government doesn’t roll back its proposal,” said BMS National Vice President M. Jagadiswara Rao, who is also a member of EPFO’s CBT.

“(Prime Minister Narendra) Modi government’s fourth year begins with further intensifying the attacks on the rights of the working people of the country. While the government claims that the rights of the workers will be safeguarded, this move on reducing EPF contribution of employers exposes the pro-corporate policies of the government and its only concern for ‘ease of doing business’,” said Centre of Indian Trade Unions general secretary Tapan Sen.