Provident Fund makeover may bring down employee outgo

NEW DELHI: The Employees' Provident Fund Organisation has proposed sweeping changes in practices that are more than half-a-century old as it looks to widen the social security net by bringing more people into its fold besides encouraging the regularisation of lowincome, blue-collar workers. It has suggested that the compulsory 12 per cent of salary paid by employees to EPFO be reduced or even waived for a certain period.

In addition, the labour ministry has proposed scrapping schedule I of the law governing EPFO, thus widening its scope to every establishment employing 10 or more people, down from 20 or more now. It's also looking to moderate the powers of scrutiny of its officers, set up an appellate committee and establish a multi-member tribunal to address grievances of EPFO subscribers.
The proposals are in line with the Narendra Modi government's vision to provide social security cover to a larger number of people besides creating a conducive environment for companies.

The Modi government wants that companies should be able to operate without the fear of unnecessary harassment by EPFO officials. "If the central government is of the opinion that having regard to the financial position of any class of establishments or other circumstances of the case, it is necessary or expedient to do so, it may, by notification in the official gazette, and subject to such conditions as may be specified in the notification, reduce or waive the contribution payable by the employee for such period as may be specified in the notification," according to the draft amendments to the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, which ET has seen.

EPFO, which comes under the labour ministry, runs a contributory provident fund, a pension scheme and an insurance scheme for organised sector workers. Employers and employees make a matching contribution, 12 per cent of salary each, that is split among three schemes. The 12 per cent mark is too high for lowwage workers because this cuts into take-home pay and hence they prefer to stay in the unorganised sector, a senior government official told ET while explaining the rationale behind proposals for such drastic changes to the Act. The employer's 12 per cent payment will continue.

"This provision will incentivise people to come into the organised sector and avail social security benefits as now the government will be empowered to reduce the employee contribution to as low as 1 per cent or even waive it off, if required, through a notification for a certain period, thus incentivising even construction workers to save a small proportion of their salary every month," the official said. Limiting the powers of EPFO officers will be a major relief for employers, said the person, who didn't want to be identified.

"EPFO officers will no longer have the power to harass employers by asking them to maintain accounts that are as old as 20 years. Instead, only accounts up to five years old can be re-opened for scrutiny (under the proposed changes), thus easing the process of maintenance for employers," the official said. The law, last amended in 1998, is aimed at providing social security by way of provident fund benefits along with pension and monetary assistance to industrial workers and their families. EPFO has more than 5 crore subscribers and a corpus of more than Rs 6.5 lakh crore.