The National Democratic Alliance (NDA) government on Wednesday announced reducing the rate of contribution for private sector firms towards Employees’ Provident Fund schemes from a total of 24 per cent to 20 per cent of the wages for the next three months.
The government has also decided to extend the subsidy benefit provided to companies for their EPF contributions for three months, from June to August. Under the Pradhan Mantri Garib Kalyan Yojana (PMGKY), the government had announced funding the entire EPF contribution made by employers for companies with less than 100 workers. It applied to firms with at least 90 per cent of the workforce earning less than Rs 15,000 a month – a move that targeted smaller firms.
However, industry executives said these measures would make only a “marginal impact” on wage bills, as the government didn’t go for the changes demanded to the PMGKY subsidy scheme, along with a steep reduction in the EPF contribution rates.
At present, 24 per cent of a worker’s basic pay is deducted — with 12 per cent each counted as employer’s and employee’s share — towards the EPF savings. This is compulsory for employees earning up to Rs 15,000 a month. All establishments employing at least 20 workers are required to pass on the EPF benefits.
Now, 10 per cent would go as the employer’s share and 10 per cent as the employee’s share towards EPF schemes. The move will not require any changes to the EPF Act, 1952. But the lower EPF contribution won't be available to around 5 million workers, who have already taken a benefit under the PMGKY.
“This will provide liquidity of Rs 6,750 crore to employers and employees over three months and will give relief to about 650,000 establishments and 43 million workers,” Finance Minister Nirmala Sitharaman said while announcing the first tranche of the economic package, known as the Atmanirbhar Bharat Abhiyan. This translates into a rough reduction of Rs 500 in a month from a worker's provident fund contribution on an average, thereby reducing the cost to company to that extent towards an employee (if the employer doesn't pass on the benefit of a reduction to workers).
The government said the move will allow more take-home salary to employees, and also give relief to employers towards payments of provident fund dues.
The finance minister clarified the EPF contribution of central public sector units and state public sector units will remain at 12 per cent. But employees will be given a choice to reduce their contribution to 10 per cent of the wages. A senior labour and employment ministry official said the EPF Act only allows a "matching contribution" from both employers and employees so it remains to be seen how this move will be implemented for the public sector unit workers. The EPFO is expected to issue a notification on Thursday.
Indian Staffing Federation President Lohit Bhatia said the government should reduce the rate of EPF contribution until March 31, 2021, “as this is liquidity enhancing measure and has no bearing on the government finances directly.”
“It is disappointing that the government didn’t allow more industries to take advantage of the subsidy scheme under the PMGKY. A total reduction of 4 percentage points in the EPF contribution won't help much,” a senior industry executive said.
The RSS-affiliated Bharatiya Mazdoor Sangh said a reduction in the rate of contribution towards EPF schemes could have been avoided.
Over the past few weeks, industry had requested the government to allow more companies to take the benefit of the EPF subsidy under the PMGKY.
However, the criteria for the scheme remained the same. The subsidy scheme had left behind a majority of workers, who received such social security cover in the formal sector. It covers only about 18 per cent of EPF subscribers as it was supposed to benefit 7.9 million of a total 43 million workers.