A high-level committee in the Indian government backed a proposed increase in the wage ceiling under the Employees' Provident Fund Organization (EPFO) to ₹21,000 ($274) a month from the current ₹15,000 ($195). The proposal, if implemented, would add an additional 7.5M workers within the EPF scheme while also adjusting for increase in wages which was last done in 2014.
The current rules mandate any company with more than 20 employees to register with the EPFO. Further, the EPF pension scheme is a mandatory benefit for all employees earning less than ₹15,000 (about $195 USD) a month. The increase to ₹20,000 ($274 USD a month) would add many new employees at employers throughout India to the pension scheme. The changes would also align the EPF with India’s other social security scheme – the Employees’ State Insurance Corporation which shares the ₹21,000 limit.
If the proposal is accepted by the Central Board of Trustee of the EPFO, the changes would provide an implementation timeline to provide relief to employers facing additional new financial burdens. The employer community had requested implementation time during the consultation period – particularly due to difficulties in the aftermath of the pandemic.
A longer implementation timeline would also be a benefit for the exchequer given the Centre currently pays about $9B USD annually to the Employees’ Pension Scheme of the EPFO. Additionally, the government contributes 1.16% of the total basic wage of EPFO subscribers towards the pension scheme.
Under the current rules, any company with more than 20 employees must register with the EPFO and the EPF scheme is compulsory for all employees earning less than ₹15,000. The increase in the limit to ₹21,000 will bring more workers under the retirement scheme. It will also align the ceiling with the other social security scheme, Employees' State Insurance Corporation (ESIC) where the limit is ₹21,000.
HRPI View: The implementation of the increase is still not final and the Committee has stated the Government can continue to receive input. However, we recommend that HR departments start work on the overall effect these changes will bring and how that will impact the wage bill of employers.