PF rules have changed; will employees' salaries be reduced? Find out
The central government has decided to increase the salary limit for mandatory contributions to the Employees' Provident Fund Organization. This decision came into effect on Thursday, Vishwakarma Jayanti. Consequently, companies registered under the EPFO with 20 or more employees will be required to contribute 12 percent of their employees' monthly salary to PF and pension funds. Employees will also contribute the same amount.
According to Labor Ministry officials, the PF contribution of employees earning up to ₹20,000 per month could increase by an average of ₹600. This government decision will increase employee savings and help them earn higher interest. This information was provided by Union Labor Minister Mansukh Mandaviya.
Meanwhile, there are concerns that companies will adjust their employees' CTCs to offset the increased PF and pension liabilities. Employers are not permitted to deduct the legal PF contribution from an employee's salary. He said detailed guidelines will be issued in this regard.
EPFO currently has approximately 8 crore contributing members and around 7.7 lakh establishments are active. Additionally, approximately 82 lakh pensioners are benefiting from the Employees' Pension Scheme (EPS). The total funds managed by EPFO have reached approximately Rs 30.1 lakh crore. This decision will help enhance the social security of employees. Furthermore, increasing the mandatory PF contribution limit will reduce the cost gap between compliant employers and unorganized units that circumvent the rules. Suchita Dutta, Executive Director of the Indian Staffing Federation, said this will promote formal employment.
Will the take-home salary (in-hand salary) be reduced?
According to the current rules, the employee and company's contribution to EPF is fixed at 12% of the basic salary and dearness allowance. However, the salary limit set by the government is applicable for calculating the required contribution. Now that the EPF contribution limit has been increased to Rs 25,000, the employees' EPF contribution will increase from Rs 1,800 to Rs 3,000 per month at the rate of 12%. This means that an employee whose contribution was earlier fixed at the limit of Rs 15,000 can now contribute more than Rs 1,200 from his salary to EPF every month. This could reduce his take-home pay to Rs 1,200.
PC: Hindustan