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 enhance the wage ceiling under the Employees' Provident Fund Organisation to Rs 25,000 per month from Rs 15,000. The move is expected to benefit over 10 million formal sector workers who will now mandatorily come under the social security net, labour and employment minister Mansukh Mandaviya said.

The enhanced wage ceiling under EPFO will put additional financial burden on employers 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 Employees’ Pension Scheme (EPS) and insurance protection under the Employees’ Deposit Linked Insurance Scheme (EDLI), in accordance with the applicable scheme provisions.

The last revision in the wage ceiling was done in 2014 when it was raised to Rs 15,000 from Rs 6,500 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.

Puneet Gupta, partner, people advisory services-tax, EY India said the increase in wage ceiling to Rs 25,000 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 while 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 added.

KE Raghunathan, national chairman, Association of Indian Entrepreneurs said this reform was long overdue and will benefit the workforce. “There could be some increase in operating cost, particularly for manufacturing and MSMEs, in the short term but social security for workers is an important investment in India's workforce in the long run,” Raghunathan added.

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 suggests that the average salary in the private sector is Rs 23000 per month, thus leaving millions of workers out of the purview of mandatory social security net.

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.