On May 18, the Government had issued a notification regarding the lowering of contribution towards the Employees’ Provident Fund or EPF, for both the employer and the employee, for the months of May, June and July. However, the Employees’ Provident Fund Organisation (EPFO) has now clarified that the lower contribution is not mandatory for either the employer or the employee.
The EPFO has also made it clear that if the employers who follow the cost-to-company (CTC) model opt for a reduced contribution of 10 per cent (instead of the usual 12 per cent), they will have to compensate their employees by paying them an amount equivalent to two per cent contribution. However, the employees who are compensated in such a manner with an additional amount equal to two per cent PF contribution, will be taxed for the same.
The employers and employees have the option to go for various combinations. For instance, both can choose to contribute 10 per cent instead of the original 12 per cent, or both can continue to contribute 12 per cent as has been the usual practice. There is also a possibility for the employer to contribute 12 per cent, whereas the employee can contribute a lower 10 per cent.
The contribution of the employers towards the PF will not affect the in-hand salaries of the employees. However, since it is an integral part of the CTC, a lower PF contribution will result in lower CTC for the employee. The pension benefits will not be impacted for the employees in any way.