How employees contributing to EPF on actual wage basis can be impacted due to hike in EPF wage ceiling limit

The higher wage ceiling limit for EPF is effective from September 17, 2026. This means that from this date, the wage ceiling for mandatory EPFO coverage will increase from Rs 15,000 to Rs 25,000 per month.

This news is likely to have maximum impact on those employees who contributed to EPF on Rs 15,000 wage ceiling limit or did not contribute to EPF since their wage was higher than Rs 15,000.

If you were already contributing to EPF on the basis of your actual wage, this news will likely have a limited impact on you. However, if you had EPS and contributed to EPS on the Rs 15,000 statutory wage ceiling limit, then this news can have an impact on you.


EPS (Employee Pension Scheme) is a benefit which only those employees who had joined service before September 2014 and were EPF members get. EPS contribution is made from the employer's share. From the employer’s 12% contribution, 8.33% is for EPS and the remaining 3.67% is for EPF.

Since the earlier EPS contribution (8.33%) was calculated on the Rs 15,000 wage ceiling limit (Rs 15,000*8.33%= Rs 1250), the higher wage ceiling limit will mean a higher EPS contribution (8.33% of Rs 25,000= Rs 2,083). This becomes a cost for the company since EPS contribution is taken from the employer’s contribution, and not the employee’s.

How employees contributing to EPF on an basis of actual wage can be impacted by a hike in EPF wage ceiling limit

Broadly two types of employees contribute to EPF on actual wage basis, i.e. those whose actual wage is more than Rs 25,000 or those whose actual wage is less than Rs 25,000 but higher than Rs 15,000.

For those employees who were contributing to EPF on a wage higher than Rs 25,000, these employees will not have any impact of this news. For those who contribute to EPF on an actual wage basis and it is less than Rs 25,000 but more than Rs 15,000, it can have a limited impact.

Avneet Singh, Associate Partner, Nangia & Co LLP says that if an employee contributed to EPF on Rs 20,000 wage ceiling basis then total contribution does not change at all: 12% of Rs 20,000 which is Rs 2,400 from each side, before and after, so the take home salary is unaffected. What changes is the internal split of the employer's share, because the EPS diversion was earlier taken at 8.33% of Rs 15,000.

Here's a table showing contributions on actual wage basis of Rs 20,000 (more than Rs 15,000 but less than Rs 25,000):

Particulars	Old- per month	New – per month
Employee EPF	Rs 2,400	Rs 2,400 (unchanged)
Employer EPS	Rs 1,250	Rs 1,666
Employer EPF	Rs 1,150	Rs 734
Total contribution	Rs 4,800	Rs 4,800/month

Source: Nangia & Co LLP

Tarun Garg, Partner (Deloitte India), said to ET Wealth Online that for employees whose EPF contributions are already being computed on their "actual wages" and it is below Rs 25,000, the hike in the EPF wage ceiling is unlikely to have any material impact on the amount of their PF contribution.

Garg says the only question the EPF authorities may raise in such cases (where contribution is on actual wage basis but is less than Rs 25,000) is that they can ask the employers to consider some of the wage exclusions as inclusion for PF contributions till the statutory PF wage threshold of Rs 25,000 per month is met and PF contributions are calculated accordingly.

According to Garg, this had happened in the past as well, when, post the Supreme Court ruling in the case of The Regional Provident Fund Commissioner (II), West Bengal and Ors. Vs. Vivekananda Vidyamandir & Ors. AIR 2019 SC 1240, the PF authorities had started raising questions specifically in the cases where PF contributions were being made by the companies on PF wages of less than Rs 15,000 per month.

Garg says: “However, under the present law (i.e. Labour Codes), the employers can take a safeguard/ shelter of 50% threshold for "wages" as per the definition of "wages".”

According to Garg, if the actual wages have always been above the earlier Rs 15,000 threshold, their EPF contributions were calculated on actual (uncapped) wages; as a result, the increase in the wage ceiling limit to Rs 25,000 has limited impact on EPF contributions.

Garg says that in many organisations, employer PF contributions are funded within a fixed Cost to Company (CTC) structure. As a result, a corresponding increase in the employer contribution may effectively come out of the employee's existing compensation package. However, employees who are already contributing PF on their actual wages, such as someone earning Rs 22,000 per month, would see no change in take-home pay.

But if this employee has EPS and the EPS contribution on a Rs 15,000 statutory wage ceiling limit, then the allocation to EPS would be higher now due to the Rs 25,000 wage ceiling limit.

Also read: Will your in-hand salary decrease after wage ceiling hike? Know why employers can't recover higher EPF contribution from these employees

A table showing how the EPS contribution increases once the higher wage ceiling limit is factored in: (the salary is assumed as Rs 15 lakh for this particular calculation):

Components	Before (15,000 Ceiling)	Before (25,000 Ceiling)	Monthly
Employee Contribution	21,600	36,000	3,000
EPS Contribution @8.33%	15,000	25,080	2,090
Employer Contribution @ 3.67%	6,600	10,920	910
Total	43,200	72,000	6,000

Source: Nangia & Co LLP

Rs 15 lakh salary break-up (post new tax regime)

Particulars		Amount (INR)
Basic		853,157
HRA		426,579
Special Allowance		426,578
Gross annual salary		1,706,314
Standard Deduction		75,000
Taxable Income		1,631,314
Income Tax		126,263
Education Cess		5,051
Total Income tax		131,314
Net Salary (Post Income Tax)		1,500,000

Source: Nangia & Co LLP

EPS contribution increases for those who joined service before 2014

Anshul Prakash, Partner at Khaitan & Co, explained to ET Wealth Online that existing EPS members who joined before September 2014 could see their employer’s minimum EPS contribution automatically going up to Rs 2,083 per month.

Kriti Kaushik, Partner at Shardul Amarchand Mangaldas & Co, says the contributions toward the Employees’ Pension Scheme (“EPS”) fund are diverted from the employer’s portion of the PF contributions. There is no deduction from the employee’s PF contribution towards EPS.

To reiterate, the employer contributes 12% of wages, of which, 8.33% is allocated towards EPS and the remaining 3.67% towards EPF, subject to the applicable wage ceiling. The employee’s 12% contribution, on the other hand, is credited entirely towards EPF.

Accordingly, under the earlier wage ceiling of Rs 15,000, the employer’s PF contribution was Rs 1,800 per month, of which approximately Rs 1,250 was allocated towards EPS. With the wage ceiling increasing to Rs 25,000, the employer’s contribution goes to Rs 3,000 per month, of which approximately Rs 2,083 would be allocated towards EPS.

Therefore, Kaushik says that while the amount allocated towards EPS increases from approximately Rs 1,250 to Rs 2,083 per month, this is entirely out of the employer’s contribution. There is no separate EPS deduction from the employee’s salary.

Kaushik says: “Thus, any impact on the employee’s take-home salary would arise from the corresponding increase in the employee’s own EPF contribution and not from the increased EPS allocation.”

Also read: EPF wage ceiling hike: Lesser take home salary for these employees; know how you will be impacted

Calculations for Rs 20 lakh CTC: (pre tax)

Annual CTC:Monthly:	20 lac1.66 lakh
Wage Ceiling	15,000	25,000
Basic:	65,000	65,000
Special:	18,333.33	18,333.33
HRA:	43,333.33	43,333.33
PF (including EPS):	1,800	3,000
Conveyance:	38200	37,000
Total Monthly	1,66,666.66	1,66,666.66
Reduction in take-home due to employer’s contribution: Rs 1,200

Source: Shardul Amarchand Mangaldas & Co

What can employers do since EPS cost goes up for them?

Avneet Singh, Associate Partner, Nangia & Co LLP, said to ET Wealth Online that since EPS is funded solely from the employer's 12% contribution, every rupee of increased EPS liability is an employer cost, not one that flows through employee deductions. And no, employers cannot simply cut an employee's basic wage to neutralise this.

According to Singh, Section 124 of the Code on Social Security restricts an employer from reducing wages, directly or indirectly, the wages of any employee to whom the provisions of this Code or any scheme framed thereunder applies or the total quantum of benefits to which such employee is entitled to under the terms of his employment, express or implied.

Singh explains what employers can do:

• Absorb the additional cost: Treat it as an increase in the retiral cost within the existing CTC (no risk).
• Re-allocate within a fixed CTC for future increments: Since CTC (not basic wage) is often contractually flexible, employers can rebalance components like special allowance or variable pay in future revisions, as long as they are not specifically targeting current wages to dodge the new liability.
• Redesign CTC structures for new hires: New employees pay package will be designed according to the new wage ceiling limit.

So retroactive reduction of an existing employee's basic pay or restructure specifically to offset this new cost is something which cannot be done.