MC EXCLUSIVE EPFO may hike wage ceiling to Rs 25,000 per month from Rs 15,000

EPFO

The Employees’ Provident Fund Organisation (EPFO) is likely to hike its wage ceiling for mandatory inclusion of employees in the Employees' Provident Fund (EPF) and the Employees' Pension Scheme (EPS) to Rs 25,000 per month in the coming months, sources aware of the matter told Moneycontrol.

At present, the wage ceiling is Rs 15,000 per month. This is the statutory ceiling for mandatory contributions to the EPF and EPS--governed by the EPFO.

Employees who are earning more than Rs 15,000 per month -- in basic pay -- have an option to opt out of these two EPFO schemes. The employers don’t have a legal mandate to register such employees under EPF and EPS.

The EPFO’s Central Board of Trustees may take up the issue for discussion in their next meeting--likely to be held in December of January--where a final approval could be given.

"As per an internal assessment of the labour ministry, the Rs 10,000 per month increase in the wage ceiling would make social security benefits mandatory for over 10 million more individuals," an official said.

"The labour unions have been seeking a raise (on wage limit) for a long time as monthly salaries of several low or mid-skilled workers in many metro cities are more than 15,000 per month,” the person added. “A higher ceiling would make them part of EPFO.”

According to the extant rules, both the employer and the employee are required to contribute 12 percent each of an employee's salary every month. However, the employee's full 12 percent goes to the EPF account, while the employer's 12 percent is split between the EPF (3.67 percent) and the EPS (8.33 percent).

Officials said that a raise in the wage ceiling would also lead to a sharp rise in EPF and EPS corpus, which would increase the pension pay-out for employees on retirement, and lead to a higher accumulation of interest credit.

The total corpus of EPFO right now is around Rs 26 lakh crore, and the number of active members is around 76 million.

Experts say the proposed increase in the EPF wage ceiling from Rs 15,000 to Rs 25,000 per month is a progressive step towards expanding social security coverage and aligning the threshold with current wage levels.

It will enable a larger segment of India’s workforce to access long-term financial protection and retirement benefits, which have become increasingly relevant amid rising economic volatility, they say.

Adil Ladha, Partner at Saraf and Partners said: "While the change could lead to a rise in statutory costs and compliance for employees, it could curb avoidance practices and improve payroll transparency."

Sujjain Talwar, Co-founding Partner, Economic Laws Practice noted that there may be some resistance from employees, particularly in the lower and middle-income brackets, who often prefer higher in-hand salaries over mandatory deductions toward provident fund contributions.