Allow flexibility to employees in PF deduction: Employees' plea to govt

Petition by 500-odd firms says staff should have say in deduction, option between NPS and EPFO

Around 500 companies, including many big ones, have written to the Union government to allow employees more flexibility in their retirement funding.

“The petition to the ministry of labour requests giving all employees three individual choices in deciding how they are paid their salary,” stated recruitment consultant TeamLease, also involved in drafting the petition.

A person who has seen the petition said some of the companies are Tata Steel, Tata Consultancy Services, Wipro Enterprises, Larsen and Toubro Infotech, Mahindra Finance, Hindustan Coca-Cola Beverages, HDFC Bank and Biocon.

In a joint communique to Union labour secretary Gauri Kumar, these companies have asked that employees be given an option on whether or not to opt for the (currently statutory) 12 per cent deduction in their wages for contribution to the Provident Fund.

“At present, 94 per cent of workers in India are working in the informal sector. Giving a choice to such employees will incentivise them to join the formal workforce,” said Rituparna Chakraborty, convenor of the effort on the petition and a co-founder of TeamLease.

At present, both employees and employers mandatorily contribute 12 per cent each of the former’s salary towards employees’ PF contribution. This is applicable to any company employing more than 20 people.

The petition asks for a choice to employees on whether to park the employer's contribution with the Employees Provident Fund Organisation (EPFO) or the National Pension System, the latter regulated by the Pension Fund Regulatory and Development Authority.  According to the norms, only salaried employees can contribute towards EPFO; any individual above 18 years of age can invest in NPS till the retirement age of 60. At present, EPFO doesn’t invest part of its total funds in the equity market but NPS can.

“India’s labour laws mandate the highest salary  deductions among various countries in the world; in a cost-to-company term, this can mean a 44.31 per cent salary deduction for low wage employees. And, contrary to public objectives, this is only 5.32 per cent for high wage employees,” stated the letter.

Economic data tells us that most low wage employees do not have such high saving rates and this leads to high attrition and informal employment, as these employees cannot live on half their salary, the letter added.

“What safety net do we talk about when 94 per cent of employees are out of it? We want to give the workers a simple choice to divest their funds according to their needs,” said Chakraborty. Employers, she said, were keenly awaiting the Union government’s reaction in the coming Budget session of Parliament in February. Recently, the Union labour ministry had proposed some changes in the Employees’ Provident Fund and Miscellaneous Provisions Act, to empower the government to waive or reduce the share of employees’ contribution towards the PF, if it feels the financial position of any class of companies covered under EPFO is getting weaker.