In yet another bid to push “formalisation” of India’s workforce and expand the social security cover, the government is likely to raise the wage ceilings for mandatory inclusion of workers under Employees’ Provident Funds (EPF) and the Employees’ State Insurance Corporation (ESIC) schemes.
“We are going to increase the wage ceilings for both EPFO and ESIC, and bring them at par,” an official said. Currently, for EPFO, the threshold is Rs 15,000 per month, and for ESIC, it is Rs 21,000. The ceiling for both may be raised to Rs 25,000-Rs 30,000 per month, the source said, adding that a final decision is expected to be taken by early 2025.
The increase in the ceiling is expected to bring nearly 10 million additional employees under the ambit the EPF and ESI Acts, experts reckon.
Wage ceiling under EPF and ESI refers to the salary threshold up to which EPF and ESI contribution is mandatory under law. The amount of ‘employee’s contribution’ towards EPF and ESI is required to be deducted from the salary of employees by the employer and be deposited with the EPFO and ESIC. The employers are required to match the contribution. Of course, a large segment of people earning higher salaries and their employers make voluntary contributions to EPF.
According to Akshay Jain, partner at Saraf and Partners, expanding the scope of mandatory minimum coverage under EPF and ESI will result in increase in the number of contributors as well as the amount of contributions even in respect of the already covered employees.
As per the present rules, employees earning more than Rs 15,000 have an option to opt out of EPF coverage. In case this threshold is raised by Rs 10,000-Rs 15,000, the number of contributors will increase. At present, the active subscribers under EPFO are around 70 million.
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The current wage limit for EPFO is set at Rs 15,000 per month, revised from Rs 6,500 in 2014. Under the EPFO, both the employee and employer contribute 12% each to the EPF account for employees earning Rs 15,000 or less each month. At present, the contributions from employee and employer both are payable on the maximum wage ceiling of Rs 15,000.
The employee’s whole contribution goes into the provident fund account. But the employer’s contribution is divided into two parts – 8.33% is allocated to the Employees’ Pension Scheme (EPS) and remaining 3.67% goes into the provident fund account.
At present, the EPF contribution of an employee with a basic salary of Rs 15,000 comes to Rs 1,800 per month. But say, if this wage ceiling is revised to Rs 25,000, this contribution will rise to Rs 3,000 per month, on a mandatory basis. For employer’s too, this number will rise proportionately on a monthly basis. As a result, the corpus of the employee will increase upon retirement, and subsequently the pension payout.
Given the Consumer Price Index (CPI), costs of medical, insurance, and pension schemes, raising the wage ceiling will support a broader workforce in managing their income more effectively, said Suma R V, partner, King Stubb & Kasiva. “Furthermore, increasing the wage ceiling is essential, as the minimum wage in many instances has surpassed Rs 15,000, rendering the current EPF cap of Rs 15,000 obsolete,” he said.
Meanwhile, under ESIC, experts say, more insurers (over 37 million at present) would be benefited in case the wage ceiling is raised by Rs 4,000- Rs 9,000. The ESI scheme is a self-financed comprehensive social security scheme devised to protect the employees covered under the scheme against financial distress arising out of events of sickness, disablement or death due to employment injuries.
Ashok Varma, partner, Grant Thornton Bharat said the wage ceiling hike under ESIC would be beneficial specially for gig workers, once the Code on Social Security is implemented.
Under the Code on Social Security, 2020, the coverage of the ESI scheme is set to extend across India to all establishments employing 10 or more employees, as opposed to the currently notified districts/areas. A provision for voluntary coverage of establishments with fewer than 10 persons has also been incorporated.
The government has offered many incentives to nudge employees and employers to subscribe to EPFO. For instance, it linked the implementation of the three Employment Linked Incentive Schemes (ELIs), announced in the July Budget, with the EPFO. And in 2020, to provide relief to businesses from Covid-19 impact, the government had paid part of the EPF contributions of both employers and employees for a period of six months.
Source : financialexpress
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