Govt to revamp laws governing salary payment

Employees to be given options with respect to Employees Provident Fund

The government today proposed to revamp laws governing salary payment and granting employees a choice over how they get salary, saying it will amend legislation in this regard after consultation with stakeholders.

Presenting his first full year Budget, Finance Minister Arun Jaitley said employees need to be provided two options with respect to the Employees Provident Fund (EPF).

"Firstly, the employee may opt for EPF or the New Pension Scheme (NPS). Secondly, for employees below a certain threshold of monthly income, contribution to EPF should be optional, without affecting or reducing the employer's contribution," Jaitley said.

With respect to ESI, he said the employee would have the option of choosing either ESI or a Health Insurance product, recognised by the Insurance Regulatory Development Authority (IRDAI).

"We intend to bring amending legislation in this regard, after stakeholder consultation," Jaitley added.

According to HR experts, the Finance Minister has thus created incentives for our youth to join the formal sector and curb the decade old trend of growing informal workforce.

According to HR consultancy firm TeamLease, India has one of the highest 'salary confiscation' regimes in the world and giving employees the choice to decide how their salaries are paid is by far the most important reform.

Nearly 100% of the net job creation over the last two decades has taken place in the informal sector and we have 90% informal employment overall, TeamLease said, adding that by recognising and offering employees the right to choose their take home pay the share of formal labour force will increase.

Currently, in a cost-to-company model, informal employees can take home their entire salary while employees in the organised sector "lose" a part of their earnings to schemes like PF, Employees State Insurance (ESI), Professional Tax, Employees Pension Scheme, statutory bonus and gratuity, TeamLease said.