EPFO latest update: Wage ceiling likely to be hiked to Rs 25000 per month; Here’s what it mean for you?
The Employees’ Provident Fund Organisation (EPFO) is planning to raise the salary limit for mandatory coverage under the Employees’ Provident Fund (EPF) and Employees’ Pension Scheme (EPS) from Rs. 15,000 to Rs. 25,000 per month, according to reports. Currently, only employees earning up to Rs. 15,000 a month in basic pay are required to be part of these schemes. Those earning above that amount can choose to opt out, and their employers are not legally required to register them under EPF or EPS.
The proposal to increase the limit is expected to be discussed in the next EPFO Central Board of Trustees meeting, likely to be held in December or January, where a final decision could be made.
Reportedly, the Rs. 10,000 increase in the salary cap could bring over 10 million more workers under mandatory social security benefits. Labour unions have been demanding this change for a long time, arguing that many low- and mid-skilled workers in cities now earn more than Rs. 15,000 a month.
Under current rules, both employers and employees contribute 12 per cent each of the employee’s salary every month. The employee’s full 12 per cent goes into the EPF account, while the employer’s share is split between EPF (3.67 per cent) and EPS (8.33 per cent).
Officials say raising the salary limit would increase the total funds in EPF and EPS, helping workers earn more interest and receive higher pension payouts after retirement.
The Employees’ Provident Fund Organisation (EPFO) currently manages a total fund of about Rs. 26 lakh crore and has around 76 million active members.
What is EPFO wage ceiling?
The EPFO wage ceiling is the highest monthly basic salary on which mandatory Provident Fund (PF) and Employees’ Pension Scheme (EPS) contributions are calculated. This limit is set by the Employees’ Provident Fund Organisation (EPFO), which manages these retirement savings schemes.
If an employee’s basic salary is Rs. 15,000 or less, they must be registered under the EPF and EPS. Both the employer and the employee are required to contribute 12 per cent of the employee’s salary every month to the Provident Fund.
However, if an employee earns more than Rs. 15,000 per month, they can choose to opt out of these schemes, and their employer is not legally required to make PF contributions for them.
What does experts say?
Experts believe that the proposal to raise the EPF wage ceiling from to Rs. 25,000 per month is a positive move. They say it will help bring more workers under the social security system and make the wage limit more in line with today’s salary levels.
According to experts, this step will give a larger share of India’s workforce access to long-term financial safety and retirement benefits, which is especially important in times of economic uncertainty.
Adil Ladha, Partner at Saraf and Partners, said the change might increase legal costs and compliance for employers, but it would also help reduce misuse of the system and make payroll practices more transparent.
Sujjain Talwar, Co-founding Partner at Economic Laws Practice, added that some employees might resist the change since many prefer taking home more cash rather than having part of their salary go into provident fund contributions.
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