Low EPFO administrative charges to boost compliance

Employee Provident Fund Organisation's (EPFO's) decision to reduce administrative charges to 0.65 per cent of total wages of an employee is likely to boost compliance and encourage more employers to avail of the scheme. 

The Central Board of Trustee (CBT) had approved the proposal to reduce the administrative charges to 0.65 per cent from the existing 0.85 per cent of total wages, on which contributions are payable. This has been a long pending demand of industry bodies and employer organisations.

The new rate of administrative charge would be applicable from April 1, 2017. However, the notification provides that the employer would have to pay a minimum sum of Rs 70 per month for every non-functional establishment having no contributory member and Rs 500 per month each for other firms.

“This has been a very long demand, this is a win-win move as it will not impact EPF functioning but will help subscribers and employees,” said an EPFO official.

The official said that the retirement fund body spends around Rs 3,200 crore for organisational expenses, including salary of employees and other activities. But it allocates more than Rs 5,000 crore for the purpose. What will happen is that we have to allocate less for our expense but I don’t think this will be a problem because, anyway, we were allocating much more for this purpose,” the official said.

Experts say that the reduction in administrative charges is a positive move for easing compliance and will benefit medium- and small-scale industries and start-ups. “It is a move in the right direction, at a time when most of the work is being done through technology and human interference is so less, there is no reason of keeping a high administrative charge, it will reduce the cost of compliance, said Rituparna Chakraborthy, executive vice-president at staffing firm TeamLease Services.

The labour ministry is on a drive to increase the EPFO’s coverage and has proposed to bring even firms with just 10 workers under its ambit. Current, only firms with 20 employees or more come under its ambit.