Government weighs raising EPFO wage ceiling to Rs 25,000 a month

The government is considering raising the wage ceiling for mandatory contribution to the Employees’ Provident Fund Organisation (EPFO) to as much as Rs 25,000 a month from Rs 15,000 to bring more workers under the social security net.

The proposal, being examined at the highest levels, could be placed before the EPFO’s central board of trustees at its meeting next month, a senior government official told ET. Coming 12 years after the last revision in 2014, the move could significantly boost the EPFO corpus, while shrinking employees’ take-home pay due to higher deductions and increasing employers’ costs.If approved, the new ceiling could come into force from April 1. This would mean all EPFO-linked benefits, will be aligned with the new ceiling.

The proposal has been fasttracked after the Supreme Court earlier this month directed the EPFO to increase the wage ceiling in four months, citing rising wages and inflation that has left a large section of workers out of the social security net.

The current ceiling of Rs 15,000 has remained unchanged since 2014, even though overall salaries for lowand mid-skilled employees may have risen beyond Rs 15,000, leaving them out of the purview of mandatory PF coverage.

“Revising the ceiling to Rs 25,000 will expand mandatory PF coverage to all employees earning up to the new limit, resulting in higher monthly inflows into Employees’ Provident Fund (EPF) and the Employees’ Pension Scheme (EPS) and strengthening the overall corpus,” said Puneet Gupta, partner, people advisory services-tax, at EY India.

It would reduce employees’ take-home pay though there will be a corresponding increase in their retirement savings and pension benefits, he said.

For employers, it would mean a larger outgo of social security contributions for their employees and broader compliance requirements. This could be a double whammy as key provisions of the Labour Codes, including revised definition of wages and gratuity outgo, have already started impacting their profit margins.