Union government to allow reduction of monthly EPFO contribution

Certain sectors will be given the flexibility to cut the mandatory monthly contribution to EPF, so that employees can carry home better salaries.

Union government to allow reduction of monthly EPFO contribution

Employees may now be able to take home higher salaries if the organised sector is allowed to reduce the monthly mandatory deductions on account of the contribution towards the employees’ provident fund. The amendment will be included in the Social Security Code Bill 2019, which will be introduced in the Parliament this week.

As per the existing practice, both the employee and employer contribute 12 per cent of the basic salary every month. If the proposal is implemented, employees will pay/contribute less (varying between nine per cent to 12 per cent), whereas the employer’s contribution will stay the same, that is, 12 per cent.

However, as a result of this reduced contribution, while the take-home salary will definitely improve, in the long term, the employees’ retirement saving will be affected.

The flexibility is likely to be brought into effect in certain sectors, such as MSME, textiles, and startups.

While the proposal has been in the pipeline for about five years now, a concrete step in the direction has been finally taken because the Social Security Code Bill is about to be tabled in the Parliament.

The annual amount accumulated by the Employees’ Provident Fund Office from the contributions made by employees and employers is approx. Rs. 1.3 trillion a year. The objective behind cutting down the contribution of employees by two or three per cent in certain sectors, is to increase the spending and boost consumption.

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