EPF wage ceiling hike: How it impacts employee & employer's contributions to EPF, EPS and take-home pay

In June, the government notified the Employees’ Provident Funds (EPF) Scheme, 2026 and the Employees’ Pension Scheme (EPS), 2026, replacing the older frameworks and bringing them under the Code on Social Security, 2020 (CoSS)—which came into force last November, replacing the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.Then, the Labour Ministry notified Rs.25,000 per month as the revised statutory wage ceiling, from Rs.15,000 earlier, which is applicable under the CoSS and effective from 17 September.

This was a “correction” aligned with today’s cost of living, given that the Rs.15,000 ceiling was last hiked in September 2014. This revision was also required to be considered by the Centre as per a recent Supreme Court ruling, which noted the disparity between this threshold and the minimum wages in many states. Here’s how it impacts wages and stakeholders.

Provident fund (PF)

*Employees with monthly wages between Rs.15,001 and Rs.25,000, categorised as “excluded employees” under the law, were outside the scope of mandatory coverage until now. As membership was voluntary, many such employees entering the workforce chose not to make any PF contributions, so as to get higher cash under the cost-to-company (CTC) model followed by most private sector employers.


*The EPF Scheme, 2026 also allows the employee and employer to agree for PF contributions to be limited to the prescribed wage ceiling. Alternatively, they can agree to make PF contributions on full wages (the excess being ‘additional voluntary contributions’). Accordingly, employees earning monthly wages above the ceiling, say Rs.1,00,000, had the option of limiting their PF contributions to the earlier ceiling of Rs.15,000 per month, i.e. actual monthly employer and employee PF contributions of Rs.1,800 each. While such existing members are still not mandatorily required to contribute on entire wages, there will be a higher contribution base of Rs.25,000 a month, and monthly employer and employee contributions would need to be Rs.3,000 each.

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*Depending on the employer’s practices and employment terms, there may be a corresponding rise in the employee’s CTC due to a rise in the employer’s PF contribution.

*Employees with monthly wages of Rs.25,000 will see a Rs.1,200 cut in net take-home pay; but this is effectively diverted as an increase in contribution into their PF account. As per the recent FAQs issued by the authorities, these employees now become members of the EPS due to the ceiling revision; their monthly employer PF contribution would rise by Rs.367 and the balance diverted to the pension scheme.

*Employees would be entitled to annual interest on these additional contributions, translating into a meaningful rise in their accumulated PF balance over a period of time. They would also be able to claim a tax exemption on this balance, subject to satisfaction of the relevant conditions in the income tax law.

How finances will change

Pension fund

*Earlier, employees with monthly wages above the old ceiling of Rs.15,000 were not eligible to become members of the EPS. Now, the enhanced wage ceiling expands pension coverage to a wider part of the workforce by bringing first-time PF members with monthly wages of up to Rs.25,000 within its ambit.

*From the overall employer contribution amount, 8.33% of wages (subject to the prescribed wage ceiling) is the contribution diverted to the EPS. So, a rise in the statutory ceiling will lead to higher amounts going to the employee’s EPF and EPS accounts, due to higher contribution. In cases where the overall contribution doesn’t change, because the contribution is made on a wage that is currently above Rs.15,000 but below Rs.25,000, the portion of employer contribution diverted to EPS would be higher.

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*Monthly pension is determined based on the formula prescribed under EPS 2026: (Pensionable wages × Pensionable service)/ 70. As a result, the enhanced wage ceiling will be considered as pensionable wages (other than those who opted for pension on higher wages), leading to higher monthly pension benefits for members of the pension fund and their kin.

*For employees who will now become members of the EPS, even if the employer’s PF contribution may increase only by Rs.367 per month, they would get a higher pension benefit due to the above changes.

The wage ceiling enhancement represents a major step towards the stated objectives of the Labour Codes by broadening social security coverage, boosting workforce formalisation, and enhancing financial security of employees.While it does impact employees’ immediate net cash take-home due to higher contribution, it will support building of future corpus for retirement and a higher pension by way of contribution to the PF and EPS.

Impact on employers

*Employers must review their employee count to identify the increased coverage of employees due to rise in ceiling limits to Rs.25,000 a month and impact (if any) on existing employees drawing monthly wages up to Rs.25,000 effective 17 September as explained above.

*The payroll system will need to factor in these changes and filing of the correct electronic challan-cum-return (ECR) for September will need to be done by 15 October. As per the FAQs, in cases where deduction from salary could not be carried out for employees who became newly eligible for coverage, employers are permitted to defer recovery of the employee share to the next payroll cycle without seeking approval. The instruction in this regard is being issued by EPFO. Further, the deferment is strictly for recovery of employee share and not for filing of ECR. Thus, a single ECR considering the two wage ceilings (Rs.15,000 up to 16 September and Rs.25,000 from 17 September) will be required to be filed by 15 October.

*The employer contribution rate for the Employees’ Deposit Linked Insurance (EDLI) scheme is 0.5% of the employee’s monthly wages. This too will rise due to the increased in the ceiling limit of Rs.25,000. The per employee amount per month can vary depending on the difference between actual wage and the wage ceiling of Rs.25,000. However, the maximum increase would be Rs.50 per month per employee at 0.5% of (new ceiling limit less earlier ceiling limit), i.e. 0.5% of Rs.25,000 less Rs.15,000. The maximum assurance benefit of Rs.7 lakh as per the present EDLI scheme 2026 remains.

*Employer must keep detailed workings of various calculations, and monitor EPFO circulars and portal instructions for operational clarifications and pass a clear message to employees specifying the intent of changes and the impact of the changes made in the scheme.

Overall, it is a welcome move that entitles more employees to formal social security protection and to enhanced long-term benefits.

The Author is Partner, Deloitte India