New Delhi: Dec 03, 2009:

Employers may soon be required to make mandatory provident fund contributions to workers with a salary of up to Rs 15,000 a month instead of Rs 6,500 at present. Union labour minister Mallikarjun Kharge is likely to ratify a proposal to this effect on Saturday, when he presides over a meeting of the Employees’ Provident Organisation’s Central Board of Trustees.

While the move would inflate corporate India’s outgo on labour, lakhs of relatively low-income workers would benefit from the safety net they are being newly provided with. A negative fallout of the move could be that a sizeable section of the workforce could see a dip in their take-home salaries.

Both employers and employees make a contribution of 12% each to the Employees Provident Fund. Of course, for people with a higher income, the PF contribution by the employer is voluntary.



According to official sources, the proposal, mooted by the labour ministry, draws from a recommendation by the parliamentary standing committee on labour which had argued that the present wage ceiling had lost its relevance in view of the rapid transformation in the economy and the consequent rise in wages. The committee had pointed out that the other social security body under the labour ministry, the Employees’ State Insurance Corporation, had accepted the changes in the employment scenario and revised its wage ceiling from Rs 6,500 to Rs 10,000.



The government has been resisting a change to the ceiling as it was worried about adding to the liabilities of EPFO’s under-funded and badly designed employees’ pension scheme (EPS). In June 2001, the salary cap for mandatory EPF contributions was revised from Rs 5,000 a month to Rs 6,500 a month. But the EPFO later realised that the move had increased its obligations under the EPS by Rs 10,000 crore.



The parliamentary panel, however, wasn’t satisfied with the reasoning and asked the government ‘to come out of its slumber’ and increase the ceiling ‘without any delay.’ Accepting that the low ceiling meant a large chunk of the work force goes out of its purview and is left with no social security benefit, the EPFO has proposed that the pension scheme’s benefits be restricted to the extent of the existing ceiling of Rs 6,500.



The EPS was estimated to have a deficit of close to Rs 50,000 crore by last year and the labour ministry was compelled to cut its commutation benefits to complete another initiative aimed at...

The Financial Express