Spike in enrollments deceptive as high volatility mars EPFO payroll data

The payroll data by the Employees’ Provident Fund Organisation (EPFO) may have shown a 34 per cent monthly jump in net enrolments in August, but it might not be an indication of revival in the job market.

When the payroll data for April was first released in June, net enrolments stood at 133,080. But it was revised sharply when fresh data was released on Tuesday to show that there was, in fact, a net reduction in payroll by 104,608 in April.

To understand this, we need to delve into how the EPFO collects the payroll data released on the 20th of every month.

A certain set of establishments (not all), with at least 20 employees, are required to make contribution towards the provident fund (PF) of its workforce. The establishments file returns, also known as the electronic-cum-challan (ECR), to the EPFO every month.

How does the EPFO arrive at net enrolment?

It is the difference between the number of workers who joined and exited the EPFO fold, along with people who have quit their EPFO subscription to join back with a formal sector job later on. Now, the EPFO receives information related to a formal sector worker joining or quitting his/her job from employers through the ECR. Companies are required to file ECR by the 15th of the subsequent month.

Employers are not legally bound to inform the EPFO about the exit of an employee in a timely manner. “The dates of exits are updated mostly when claims are filed by members (or employees) usually after two-three months of leaving the employment,” the EPFO informed the labour ministry in a communique in November 2018.
 

Every time an employer files a delayed return, the EPFO goes back to the payroll data and corrects it, which gets reflected in the monthly revisions. However, there is a catch. The EPFO doesn’t update the records for a fiscal year after it has released the data for all the months. The EPFO stops the clock on revisions after the data for March is released every year, distorting the payroll data further.

The government enforced the nationwide lockdown on March 25. As companies faced difficulties in filing the ECR, the EPFO allowed them to file the returns for the month of March by May 15, instead of April 15.

“The lockdown period saw a sudden surge in applications for settling (or closing) the EPF accounts by workers,” a senior EPFO official explained.

The official pointed out that in February, the EPFO had allowed formal sector workers to update their date of exit directly through an online portal, rather than routing it through their previous or current employers.

This shows that minor tweaking or certain relaxations in the norms by the EPFO can have a direct bearing on the payroll data.

Coming back to the April data, there was 4x increase in formal sector workers who exited in that month from when the data was first reported in June. Against this, the newly joined workers increased by about 73 per cent, leading to a contraction in the payroll data.

Even for May, there was a net decline in payroll by 35,336, the data released on Tuesday showed, against net enrolment of 318,789 reported in July — a major difference of 354,125.

But this doesn’t take away the fact that there were more job losses than gains in April and May, which were reported in the subsequent months to the EPFO.

“It gives a myopic view of the entire labour force. We do need to know the trends in the formal sector, but this dataset is constantly fluctuating making it difficult to track on a monthly basis,” said Indian Council for Research on International Economic Relations Senior Fellow Radhicka Kapoor.

She pointed out how much of the addition to the EPFO numbers in 2017-2018 was attributed to the Pradhan Mantri Rojgar Protsahan Yojana — a scheme effective from 2016-19 through which the government funded the EPF contribution of new employment for the first three years.

When the Code on Social Security, 2020, will get implemented from the next fiscal year, the EPFO payroll data will get distorted further. 

The new law will cover all establishments hiring at least 20 workers under the EPFO, against only specific set of sectors notified by the government.

The EPFO data released on Tuesday showed net enrolment of 1 million in August, compared to 748,784 in the previous month.