PF contribution likely to be on 'Contributory Wages'

In a breather to employers, the Labour Ministry has proposed that contribution by companies towards their workers' EPF schemes would be a portion of "Contributory Wages" which will not include house rent and travel allowances.
The concept of "Contributory Wages" for the purpose of PF deductions has been included in the Employees Provident Funds and Miscellaneous Provisions (Amendment) Bill, 2015, which will soon be placed before the Cabinet for approval.
"The bill has been firmed up. It will be sent for Cabinet approval so that it could be introduced in the Monsoon session of Parliament," a senior Labour Ministry official said.

The final draft, prepared by the Labour Ministry, is significant dilution of concept of clubbing wages proposed by the labour unions.
While the unions wanted that 12 per cent PF contribution by the employers should be on total take home salary, the employers were opposed to the idea as it would have increased their PF liability and reduced workers' pay.
The final draft has proposed that PF contribution made by employers would be a portion of contributory wages which will not include HRA, travel allowance, allowance to defray special expenses entailed on workers by nature job, gratuity.

As per the bill the Contributing Wages means all remuneration paid or payable to an employee in terms of the contract of employment, express or implied, and will include any payment to an employee in respect of any period of authorised leave, lock-out, strike which is not illegal or layoff and other additional remuneration, if any, paid at intervals not exceeding two months.

The proposed Bill also provides one-time option to EPFO subscribers to choose between EPF and New Pension Scheme.
Finance Minister Arun Jaitley had made announcement regarding providing an option to formal sector workers to choose between EPF and NPS in his budget speech.
At present formal sector workers are covered under social security schemes run by Employees Provident Fund Organisation (EPFO) as per the Employees Provident Funds & Miscellaneous Provisions Act 1952.
The proposed Section 16-B provides that workers opting for NPS shall be deemed to have exited from the Employees' Provident Fund Scheme, Employees' Pension Scheme, Employees' Deposit Linked Insurance Scheme or any other scheme notified under this Act from the date of submission of the application.

The bill also provides for a definition of 'small establishment' which employ less than 40 workers. These firms' cash in bank or hand, plant and machinery and office equipment critical to function, would be protected from attachment under the Act for recovery of PF dues for 90 days from date of issue of recovery certificate to these firms.
The draft bill also provides flexibility to increase or decrease the mandatory contribution of 8.33 per cent of basic wages toward employees' pension scheme.