EPFO wage ceiling raised to Rs 25000 per month; over 10 million formal sector workers to benefit

The union cabinet, on Wednesday, gave its go ahead to enhancement of under the to Rs 25000 per month from Rs 15,000. The move is expected to benefit over 10 million who will now mandatorily come under the net.

The enhanced contribution under will put additional financial burden on employees and the government while the employees may see a dip in take home salary.

As per government estimates, the average additional outgo for employers will be Rs 600 per worker per month under the enhanced wage ceiling, which comes into effect from Thursday.

The annual government outgo is estimated at about Rs 11,339 crore, against the existing annual budgetary support of about Rs 10,250 crore. The estimated expenditure over five years is approximately Rs.56,696 crore.

The government contributes 1.16% towards pension under EPFO.

The ministry of labour and employment will notify the changes shortly.

The approval will expand access to provident fund savings, pension protection under the (EPS) and under the Employees’ Deposit Linked Insurance Scheme (EDLI), in accordance with the applicable scheme provisions.

The last revision in wage ceiling was done in 2014 when it was raised to Rs 15000 from Rs 6500 per month.

At present, a fresh employee joining employment at a wage above Rs 15,000 per month is not automatically covered under the EPF framework and may remain outside mandatory provident fund, pension and associated insurance protection. Raising the ceiling to Rs 25,000 will bring a substantial segment of employees in the Rs 15,000– Rs 25,000 wage band within the statutory social security framework.

“The measure is expected to give a further impetus to formalisation of employment, worker retention and long-term retirement security,” an official statement said.

The government is of the view that minimum wages in several states and occupations have also moved closer to the existing threshold.

Besides, a government survey suggest that the average salary in private sector is Rs 23000 per month, thus leaving million of workers out of the purview of social security net.

The enhancement to Rs.25,000 therefore updates the EPFO framework in line with rising wage levels and extends the benefits of formal social security to a wider segment of the workforce.

EPFO has an estimated 79.8 million contributing members across about 0.76 million contributing establishments, while the EPS provides pension benefits to around 8.2 million pensioners.