Govt wants to reduce PF contribution to increase take-home salary

Trade unions oppose saying it will weaken the social protection of employees

The labour ministry has proposed to reduce the employer’s contribution to the Employees’ Provident Fund (EPF) from 12 per cent to 10 per cent. The proposal, which will be opposed by trade unions, will come up for approval in the meeting of the Central Board of Trustees (CBT) on Saturday.

Around 50 million employees in the country receive provident fund contributions. The move, according to the labour ministry, will increase the take-home salary of employees. But trade unions opposing the move termed it an attack on social security.

According to the agenda paper of the meeting, the Employees’ Provident Fund Organisation’s (EPFO’s) CBT will consider a proposal to lower “the rate of contribution to be paid by employer and equal contribution by employees from the present 12 per cent to 10 per cent by issue of appropriate order by the Central Government”. 

The Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, empowers the Central government to lower the contribution rate and the government intends to issue a notification to effect the change. The ministry has also said that the main grounds on which it has requested the EPFO to place the proposal in the agenda are that there were “demands from various quarters on many occasions to review the present rate of EPF contribution and placing it at par with other social security schemes, such as the National Pension System”.

“There have been demands from various quarters on many occasions to review the present rate of EPF contribution and place it at par with other social security schemes such as the NPS, etc,” the letter from the labour ministry said.

The Economic Survey had called for giving a greater choice to workers to decide if they wanted to make their contribution to the EPF.

Advocating labour reforms, the Survey said low-wage employees (people earning less than Rs 20,000 salary per month) received just 55 per cent of their salary because 45 per cent was deducted under heads such as the EPF, Employee Pension Scheme (EPS), Labour Welfare Fund (LWF), and Employee State Insurance (ESI).

It said low-wage employees might prefer receiving these contributions now than benefitting from them later.

“Given the difficulty of reforming labour laws per se, the thrust could be to move towards affording greater choice to workers which would foster competition amongst service providers,” the report said.

Trade union leaders said this would be an attack on employees’ social protection. “We will definitely oppose this move; this is being done for employers’ interests and will weaken workers’ interests,” said DL Sachdeva, secretary, All India Trade Union Congress.

Ramen Pandey, president, Indian National Trade Union Congress (INTUC), said: “We from the INTUC have no hesitation to say that the proposal in Item No10 of the said meeting agenda appears to be the most retrograde policy proposal brought before the CBT.”