Cabinet lifts EPFO wage ceiling to Rs 25,000 after 12 years

The Union Cabinet on 16 September approved a rise in the wage ceiling for mandatory coverage under the Employees' Provident Fund Organisation, from Rs 15,000 a month to Rs 25,000. The new ceiling takes effect on 17 September, Vishwakarma Jayanti and Sewa Divas. The last change was in September 2014.

Labour Minister Mansukh Mandaviya and Information and Broadcasting Minister Ashwini Vaishnaw briefed reporters after the meeting, which Prime Minister Narendra Modi chaired. The Cabinet note says more than 51 lakh additional employees should come inside mandatory cover. Those workers, earning between Rs 15,000 and Rs 25,000, have until now been outside the automatic net when they joined an establishment. They will now be pulled into the Employees' Provident Fund, the Employees' Pension Scheme and the Employees' Deposit Linked Insurance Scheme, subject to each scheme's rules.

EPFO currently counts about 7.98 crore contributing members across 7.68 lakh establishments. The pension scheme pays about 82 lakh pensioners. The Expenditure Finance Committee cleared the proposal on 16 June after inter-ministerial talks.

What it costs, and who pays

Mandaviya put the extra employer contribution at Rs 600 per covered worker. The employee's pension contribution at the new ceiling works out to about Rs 2,082.50 a month, which is 8.33 percent of Rs 25,000, up from Rs 1,250 at the old ceiling. Annual government outgo is estimated at Rs 11,339 crore, against existing budgetary support of about Rs 10,250 crore. Over five years the estimate is Rs 56,696 crore.

Employer groups welcomed the decision and asked the Centre for help with implementation. Trade unions called the increase too little and too late. Both reactions were predictable. The more useful number is the 51 lakh. That is the size of the wage band the state has just decided to treat as formal enough for forced saving.

The ceiling is not a cap on how much a person may contribute. High earners can already stay in the fund by agreement with the employer. The ceiling decides who must join. Raising it by Rs 10,000 after twelve years is an admission that the 2014 line had fallen behind actual pay in organised services, retail, logistics and small manufacturing. It is also a cost line on every payroll in that band. Firms that kept people just above Rs 15,000 to avoid the levy now face a new threshold at Rs 25,000. Some will redesign contracts. Some will comply. The ministry and EPFO still have to issue the statutory notices that make the Cabinet decision operational.

What a new member actually gets

Three products move together. The provident fund is a savings account with an administered interest rate. The pension scheme pays a monthly amount after retirement, calculated on pensionable wage and years of service. EDLI pays a lump sum to a family if the member dies in service. For a worker at Rs 20,000 a month who was previously outside the net, the change is not abstract. A slice of pay will leave the salary credit each month, the employer will add a slice, and a claim will exist that did not exist on 16 September.

Whether 51 lakh people actually appear on the books depends on enforcement in establishments that have learned to live just above the old line. The Cabinet has moved the line. The test is how many names follow it.