How EPFO wage ceiling reset will change PF contribution math

The retirement savings landscape is set for a reset as the higher EPFO wage ceiling brings more workers under mandatory provident fund and pension contributions.

The Employees’ Provident Fund Organisation (EPFO) has raised the mandatory wage ceiling from Rs 15,000 a month to Rs 25,000, increasing the amount that employees and employers must contribute towards provident fund (PF) savings.

Under the revised ceiling, an employee earning Rs 25,000 a month will contribute Rs 3,000 to PF, calculated at 12% of the wage. This is higher than the earlier mandatory contribution of Rs 1,800.


The employer’s PF contribution will rise to Rs 917 from Rs 550, based on the 3.67% contribution rate. Together, the employee and employer contributions will take the mandatory monthly PF contribution to Rs 3,917.

Also read | Don't cut salaries: Ministry sends a missive to companies after new ₹25,000 EPF wage ceiling

A larger portion of the employer’s contribution will also flow into the pension fund. The employer will contribute Rs 2,083, or 8.3% of the wage, to the Employees’ Pension Scheme (EPS), compared with Rs 1,250 earlier.

These points were clarified in a govt FAQ released recently.

The government raised the EPFO wage ceiling on September 17 with the aim of bringing one crore more workers into the social security system. The change follows the increase in minimum wages beyond Rs 15,000 in seven states and Union Territories — Delhi, Maharashtra, Karnataka, Haryana, Gujarat, Rajasthan and Uttarakhand.

What happens at different salary levels

For an employee earning Rs 20,000 a month, the mandatory PF contribution will amount to Rs 3,134. The employee will contribute Rs 2,400, while the employer’s PF share will be Rs 734. A further Rs 1,666 from the employer’s contribution will be directed towards EPS.

The calculation changes for employees earning above the new ceiling. Someone drawing Rs 35,000 a month, for instance, will have a mandatory PF contribution of Rs 6,000, split equally between the employee and employer at Rs 3,000 each.

However, there will be no pension contribution under EPS in this case. The scheme applies only to employees whose wages are within the EPFO’s prescribed wage ceiling.

The EPFO said the revised framework took effect from September 17. It has also asked employers to examine compliance among contractors wherever contract workers are engaged and make the necessary changes to payroll systems.

Also read | EPF wage ceiling history: How ₹300 became ₹25,000 and what it means for your salary

The retirement fund body has also clarified that employers cannot shift their statutory contribution to employees by simply showing the amount as part of the cost-to-company (CTC) and recovering it from salaries.

For small and medium enterprises, the higher wage ceiling could raise compliance-related expenses. Part of this additional burden, however, could be offset by the government’s employment incentive scheme. Under the PM Viksit Bharat Rojgar Yojana, employers can receive an incentive of up to Rs 3,000 a month for every additional job created.