The Indian government is reportedly planning to increase the wage ceiling and reduce the minimum employee threshold for participation in the Employees' Provident Fund Organisation (EPFO), as part of its ongoing efforts to enhance social security for workers.
Currently, the wage ceiling for EPFO is capped at ₹15,000 per month. Under the proposed changes, this limit could rise to as much as ₹21,000, aligning it with the wage ceiling set by the Employees' State Insurance Corporation (ESIC). Additionally, the mandatory threshold for organisations to join the EPFO could be lowered from the existing 20 employees to between 10 and 15, thereby expanding coverage to more workers. The Ministry of Labour and Employment is reportedly in discussions with stakeholders to finalise these changes, according to sources familiar with the matter. The move is seen as a step towards strengthening the social security framework ahead of the planned rollout of the Social Security Code.
The proposed changes come after strong recommendations from a steering committee tasked with reviewing and suggesting ways to broaden social security provisions for workers.
A Long-Overdue Reform
The government is reportedly keen to push forward with these reforms, recognising that the revisions to the EPFO ceiling and thresholds have been long overdue. "The minister is evaluating all pending proposals, and the government feels the wage ceiling and the threshold revision under EPFO is long overdue," a senior official stated.
The last significant update to the wage ceiling was in 2014 when it was raised from ₹6,500 to ₹15,000. If approved, the new ceiling of ₹21,000 would not only increase employees' contributions to their provident fund but also bolster their pension funds. However, the change would also lead to higher financial obligations for employers, who are required to match employees' contributions at 12% each.
Under the EPFO scheme, both employees and employers contribute 12% of the employee's salary. The full 12% of the employee's contribution is directed into the provident fund, while 8.33% of the employer's share goes to the Employees' Pension Scheme (EPS), with the remaining 3.67% added to the provident fund.
Resistance from Small Businesses
However, there are concerns from smaller businesses, particularly micro and small enterprises, about the proposed reduction in the employee threshold. "Micro and small establishments are resisting lowering the threshold from 20 employees as it could enhance their compliance burden and cost," explained another person familiar with the discussions. Despite these objections, the government remains determined to push forward with the reform, citing its commitment to ensuring greater social security for the workforce.
The changes are part of the broader efforts to modernise and strengthen the social security system, particularly as India prepares to implement the Social Security Code, which aims to provide greater welfare benefits to workers across various sectors.
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