NEW DELHI: The Centre is expanding mandatory retirement and social-security coverage to more formal-sector workers, raising the wage ceiling for compulsory Employees’ Provident Fund Organisation (EPFO) coverage to ₹25,000 a month from ₹15,000.
The move, the first revision of the ceiling in 12 years, is expected to bring more than 5.1 million additional employees under mandatory EPFO coverage. The revised ceiling will take effect from 17 September.
The decision assumes significance as currently has 79.8 million contributing members across 768,000 establishments, according to the EPFO dashboard.
The decision was announced by Union minister for information and broadcasting Ashwini Vaishnaw while briefing the media on key decisions taken by the Union cabinet, chaired by Prime Minister Narendra Modi.
A higher entry point
Currently, employees drawing basic wages of up to ₹15,000 a month are mandatorily covered under EPFO, while those earning above the threshold can join subject to applicable conditions.
The higher ceiling means employees earning between ₹15,000 and ₹25,000 a month will no longer remain outside mandatory EPFO coverage merely because their wages exceed the old threshold. They will come under the statutory social-security framework, with access to provident fund savings, pension under the Employees’ Pension Scheme () and insurance protection under the Employees’ Deposit Linked Insurance Scheme (EDLI).
The revised ceiling comes into effect on 17 September, which coincides with Vishwakarma Diwas and Seva Diwas. Vishwakarma Diwas is observed as a day associated with artisans and skilled workers, while Seva Diwas is observed annually on 17 September to mark PM Modi’s birthday.
In a separate briefing, Mansukh Mandaviya, Union minister for labour and employment, said, “The decision will provide employees with the benefits of provident fund savings, pension and insurance protection. It is a major step towards providing social security to all workers under the Labour Codes and will also give further impetus to the formalisation of employment.”
Mandaviya also highlighted that the wage ceiling has remained unchanged at ₹15,000 since September 2014, even as wages, minimum wages and living costs have increased considerably during this period.
“Today, the average income of a regular salaried employee is around ₹23,000, while minimum wages, including for unskilled workers, have crossed ₹15,000 in several states. As a result, a fresh employee joining employment at a wage above ₹15,000 is not automatically covered under and is also not eligible for pension benefits under EPS,” Mandaviya said.
Higher costs for employers, workers
The government said the measure is expected to give further impetus to employment formalization, worker retention and long-term retirement security. “For employers as well, wider social-security coverage can support employee retention, workforce stability, morale and the development of a more secure and future-ready workforce,” the Ministry of Labour and Employment said in an official statement.
“The move will help create a more level playing field, as compliant staffing firms already provide EPF, EPS and EDLI benefits, while the higher threshold could narrow the cost arbitrage available to unorganised players and accelerate the shift from informal to formal employment,” said Suchita Dutta, executive director, Indian Staffing Federation.
The proposal underwent detailed inter-ministerial consultations and was recommended by the Expenditure Finance Committee at its meeting on 16 June. The annual government outgo is estimated at about ₹11,339 crore, against existing annual budgetary support of about ₹10,250 crore. The estimated expenditure over five years is approximately ₹56,696 crore.
EPFO operates one of the world’s largest social-security systems, administering the Employees’ Provident Fund (EPF), EPS and EDLI. The EPS provides pension benefits to around 8.2 million pensioners, while EDLI provides insurance protection linked to EPF membership.
The expansion will also raise the contribution burden for employers and some employees.
“This is expected to enhance retirement savings and social security coverage for employees. However, it will also have a direct cost implication for employers through higher PF, pension and EDLI contributions, particularly for employees currently drawing wages between ₹15,000 and ₹25,000 where contributions are restricted to the statutory ceiling,” said Puneet Gupta, partner, People Advisory Services-Tax, EY India.
“Employees in the affected salary bracket are also likely to witness a reduction in take-home pay due to the higher employee PF contribution,” Gupta said.