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Last Updated : Aug 29, 2019 01:13 PM IST | Source: Moneycontrol.com

Higher take home? Labour Ministry’s proposal is myopic

Increasing take home salary by lowering employees’ mandatory contribution to PF is like enjoying today and leaving little for the rainy days

Moneycontrol Contributor @moneycontrolcom

S Murlidharan

The Labour Ministry’s proposal to increase take home salary of employees by cutting their contribution to provident fund perfectly exemplifies the hoary adage -- The path to hell is paved with good intentions.

The law mandates an employee to contribute 12 percent of his salary to provident fund, with the employer making a matching contribution.

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The worker’s share would in future depend on their age, gender or pay grade while the employer's share will remain unchanged. Provident fund (PF) is the only post-retirement war chest assiduously accumulated by salaried employees.

The proposal would have the effect of enjoying today and leaving little for the rainy days. Already, there are a slew of excuses or reasons for withdrawing from PF accumulations midway through one’s employment -- daughter’s marriage, son’s higher education, new home, medical condition and the like. All these severely dent one’s accumulations, thus putting old age finances in jeopardy. A reduced contribution would only exacerbate the problem of anaemic PF accumulations.

This move comes on the heels of reducing both employers’ and employees’ contributions to Employees’ State Insurance (ESI) with effect from July 1, 2019. Nearly 4.75 per cent of a worker’s monthly salary went towards ESI as the employer’s contribution and 1.75 per cent as the employee’s share till June 2019. Now, the figures stand at 3.25 per cent for the employer and 0.75 per cent for the employee.

This was win-win for both employers and employees as the Employees’ State Insurance Corporation (ESIC) renders services and offers handouts in addition to encouraging formalisation of the economy by making the unorganised sector embrace the mainstream economy. But the PF move spells a reduced war chest for employees when they hang up their boots.

Age, gender and pay grade as determinants of an employee’s contribution to PF introduces a huge element of complication and lack of uniformity into the calculus. Perhaps, the thinking seems to be that the younger an employee, the greater the capacity to fork out more because as one grows old, he would have more number of mouths to feed and more expenses to meet.

But then this is specious. An employee starts earning substantially more, with the benefit of experience and promotions that come his way as he advances in age. It would be wrong to pare his contributions to PF just at a time when his salary is growing in size, thus reducing the size of his end-of-the-career PF accumulations.

PF contributions that vary with one’s gender are highly objectionable. How can the government discriminate between a male and female?  Is it making a case that a male needs to accumulate more for his post retirement life vis-à-vis a female?  This is based on the shibboleth that a male is cast in the role of a provider more than a female.

And if it is the other way round i.e. a male needs to spend more and hence needs to have greater disposable income vis-à-vis his female counterpart, once again on the basis of the erroneous assumption that males are cast by the creator in the role of providers than females, it is equally wrong. Contributions varying with one’s gender perpetuate age-old prejudices and stereotypes.

Pay grade as a determinant of one’s contribution to PF is equally irrational.  Does this mean one’s contribution would taper off on a reducing scale as one’s salary increases?  Or at the other extreme, does it mean greater contributions as one has greater income to spare for future? Both assumptions are highly presumptuous.

At the macro level, while the ESI reforms served to encourage both employers and employees joining the mainstream, the putative PF reforms are myopic, besides achieving no such macro objectives.

There are other ways of increasing take home salary of employees. Reduction in income tax is one such measure.

S Murlidharan is a chartered accountant and columnist. Views are personal.
First Published on Aug 29, 2019 01:13 pm
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