Centre raises EPFO wage ceiling to Rs 25,000

• The Union Cabinet, chaired by Prime Minister Narendra Modi, approved the proposal of the Ministry of Labour & Employment to enhance the wage ceiling for mandatory coverage under the Employees’ Provident Fund Organisation (EPFO) from Rs 15,000 to Rs 25,000 per month. 

• The decision is expected to bring more than 51 lakh additional employees within the ambit of mandatory EPFO coverage, significantly widening social security protection for workers.

Significance of raising EPFO wage ceiling

• The wage ceiling was last revised in September 2014.

• Since then, India has witnessed sustained wage growth, rising incomes and continued expansion of formal employment. 

• In several states and occupations, minimum wages have also moved closer to the existing threshold. 

• At present, a fresh employee joining employment at a wage above Rs 15,000 per month is not automatically covered under the EPF framework and may remain outside mandatory provident fund, pension and associated insurance protection. 

• The enhancement to Rs 25,000 updates the EPFO framework in line with rising wage levels and extends the benefits of formal social security to a wider segment of the workforce.

• The measure is expected to give a further impetus to formalisation of employment, worker retention and long-term retirement security. 

• The approval will expand access to provident fund savings, pension protection under the Employees’ Pension Scheme (EPS) and insurance protection under the Employees’ Deposit Linked Insurance Scheme (EDLI), in accordance with the applicable scheme provisions. 

• It will also enable the statutory contribution and pensionable-wage framework to better reflect prevailing wage levels.

• By bringing a larger number of employees automatically within the statutory social security framework, the decision strengthens the principle that formal employment should be accompanied by portable and assured social security protection. 

• For employers as well, wider social security coverage can support employee retention, workforce stability, morale and the development of a more secure and future-ready workforce.

Employees’ Provident Fund Organisation (EPFO)

• The Employees’ Provident Fund came into existence with the promulgation of the Employees’ Provident Funds Ordinance in November, 1951, with a view to provide for the institution of provident funds for employees in factories and other establishments.

• It was replaced by the Employees’ Provident Funds and Miscellaneous Provisions Act on March 4, 1952.

• The Scheme framed under section 5 of the Act was brought into force in stages and was enforced in its entirety by November 1, 1952. This date is now celebrated as the Foundation Day of EPFO.

• The EPFO is responsible for administration of the Employees Provident Funds and Miscellaneous Provisions Act, 1952.

• The Act extends to the whole of India.

• The Central Board (EPF) is a tripartite statutory body constituted by the central government under Section 5A of the Act. 

• It has the responsibility to administer the Act and the three schemes framed under the Act. The Union minister for labour & employment is the chairman of the Board. The tenure of the Board is five years.

• EPFO operates one of the world's largest social security systems, administering the Employees’ Provident Fund (EPF), Employees' Pension Scheme (EPS) and Employees' Deposit Linked Insurance Scheme (EDLI). 

1) Employees’ Provident Fund Scheme

• Employees’ Provident Fund Scheme, 1952 is the first scheme under the EPF & MP Act, 1952, that came into effect on November 1, 1952. 

• It is a statutory benefit available to the employees post-retirement or when they leave the services. In case of deceased employees, their dependents are entitled for the benefits. 

• Under the scheme, both employers and employees make their contribution towards the fund. 

• Both employee and employer contribute 12 per cent of basic wages + dearness allowance.

• Employee’s entire contribution goes to EPF.

• Employer’s share is split between EPF, Employees’ Pension Scheme (EPS), and Employees’ Deposit Linked Insurance (EDLI).

• Interest earned on the amount is credited to the members Provident Fund Account (PF accounts) and is available to the employees at the time of retirement or exit from employment as the case may be, provided certain conditions are fulfilled.

• The scheme mandates coverage of all establishments under its scheduled list of establishments/factories, employing 20 or more persons.

2) Employees’ Pension Scheme

• The Employees’ Pension Scheme, 1995 (EPS) came into effect on November 16, 1995. 

• With its introduction, the erstwhile Employees’ Family Pension Scheme, 1971 (EFPS) ceased to operate and all the assets and liabilities of this scheme were transferred and merged with the Employees’ Pension Fund.

• The benefits and entitlements of the beneficiaries under the old scheme (EFPS) are protected and continued under the new EPS, 1995.

• EPS has been designed on the principles of a “Defined Contribution Defined Benefit” Social Insurance Scheme and adopts “actuarial principles” for ensuring long term financial viability. The scheme aims at providing economic sustenance during old age and survivor-ship coverage to members and their families. 

• The Employees’ Pension Scheme, 1995 is funded by diversion of an amount equivalent to 8.33 per cent of the monthly wages from the monthly employer’s share of Provident Fund contributions as well as a contribution of 1.16 per cent of the monthly wages by the central government.

3) Employees’ Deposit Linked Insurance Scheme

• Employees’ Deposit Linked Insurance Scheme-1976 (insurance scheme) came into force on August 1, 1976. This scheme is supported by a nominal contribution by the employers. No contribution is payable by the employee for availing the insurance cover.

• Insurance scheme is applicable to all factories/establishments to which the EPF Act, 1952 applies. All the employees who are members of the provident fund are members of this scheme.

• In case of death during service, the nominee receives a minimum of Rs 2.5 lakh and up to Rs 7 lakh, based on the employee’s salary and EPF balance.