EPFO wage ceiling raised to Rs 25,000, widens social security net - The Indian Express

The Union Cabinet Wednesday approved a hike in the wage ceiling for subscribers of the Employees’ Provident Fund Organisation (EPFO) to Rs 25,000 from Rs 15,000 per month, a revision after a gap of 12 years. Union Minister of Labour and Employment Mansukh Mandaviya said the increase in the wage hike ceiling will be effective Thursday, which is also Vishwakarma Day.

Over eight crore workers will now be mandated to contribute to the retirement fund for social security up to the wage limit of Rs 25,000, beyond which contributions will be voluntary. Monthly pension contribution will be capped at Rs 2,080, up from Rs 1,250.

Both employees and employers contribute 12 per cent of the employee’s basic salary, dearness allowance and retaining allowance, if any, to the EPF. The employee’s entire contribution goes to EPF, while the 12 per cent contribution by the employer is split as 3.67 per cent to the EPF and 8.33 per cent to EPS, i.e., the Employee Pension Scheme.

The government contributes 1.16 per cent for an employee’s pension. Employees do not contribute to the pension scheme.

The hike in wage ceiling is expected to bring in an additional 51 lakh employees under the ambit of EPFO, and the government will have to bear the additional cost of Rs 1,089 crore – the annual government outgo on account of additional pension contributions will increase to about Rs 11,339 crore as against the existing annual budgetary support of about Rs 10,250 crore.

On an average, the total EPF contribution for a worker is expected to go up by Rs 600 per month, as per official estimates.

The increase in wage ceiling will expand access to provident fund savings, pension protection under the EPS and insurance protection under the Employees’ Deposit Linked Insurance Scheme (EDLI), a government release said. It will also enable the statutory contribution and pensionable-wage framework to better reflect prevailing wage levels, the statement said.

The government had last hiked the EPFO wage ceiling to Rs 15,000 from Rs 6,500 in September 2014.

The present decision carries forward this approach by further raising the ceiling to Rs 25,000 to reflect the sustained wage growth, rising incomes and a continued expansion of formal employment over the intervening years – the release stated.

KE Raghunathan, National Chairman of the Association of Indian Entrepreneurs and a former employer representative, said the hike was a long-pending reform but that there may be some increase in operating costs, particularly for manufacturing and MSMEs, in the short term. But in the long run, stronger social security for workers is an important investment in India’s workforce, he said.

One of the concerns raised by experts is that with the hike in the wage ceiling, employers will try to absorb it in the existing cost-to-company (CTC) structure, effectively reducing the take-home pay for workers with higher social security contributions.

“We have taken note of the concerns. Legally, the PF contribution from the employer’s side is not allowed to be deducted from the employees’ pay. We will reiterate this point when we issue the guidelines for the revised wage ceiling,” a senior official said.

Aanchal Magazine is a Deputy Associate Editor with The Indian Express, serving as a leading voice on the macroeconomy and fiscal policy. With 15 years of newsroom experience, she is recognized for her ability to decode complex economic data and government policy for a wider audience. Expertise & Focus Areas: Magazine’s reporting is rooted in "fiscal arithmetic" and economic science. Her work provides critical insights into the financial health of the nation, focusing on: Macroeconomic Policy: Detailed tracking of GDP growth, inflation trends, and central bank policy actions. Fiscal Metrics: Analysis of taxation, revenue collection, and government spending. Labour & Society: Reporting on labour trends and the intersection of economic policy with employment. Her expertise lies in interpreting high-frequency economic indicators to explain the broader trajectory of the Indian economy. Personal Interests: Beyond the world of finance and statistics, Aanchal maintains a deep personal interest in the history of her homeland, Kashmir. In her spare time, she reads extensively about the region's culture and traditions and works to map the complex journeys of displacement associated with it. Find all stories by Aanchal Magazine here ... Read More

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