EPFO wage ceiling raised to ₹25,000 after 12 years
The Ministry of Labour and Employment has raised the EPFO wage ceiling from ₹15,000 to ₹25,000 a month from 17 September, the first revision in 12 years. Over 51 lakh more workers are expected to come under mandatory coverage, and the maximum monthly employer pension contribution rises from ₹1,250 to ₹2,083.
Syllabus: GS3 · Indian Economy & Growth; GS3 · Inclusive Growth; Prelims · Economy & Social Development
Why it matters
A recruit hired at ₹20,000 a month was, until 17 September, not automatically enrolled in the provident fund, the pension scheme or the insurance cover; that worker now must be. Twelve per cent of wages, ₹2,400 a month on ₹20,000, goes into the provident fund, and an EY tax partner expects take-home pay in this band to fall. The employer adds a matching 12%, most of it into the pension fund. The pension builds slowly: it is worked out pro rata for each ceiling period, so the higher ceiling counts only for service after 17 September. Employers' costs rise; the head of an entrepreneurs' body wants the government to absorb the increase for MSMEs for two years. The Centre presents the change as a push to formalise jobs.
Prelims pointers
- Code on Social Security, 2020: merged nine laws, including the Employees' Provident Funds and Miscellaneous Provisions Act, 1952; the Centre notifies the wage ceiling under it.
- Employee contributes 12% of wages (basic pay, dearness allowance and retaining allowance) — all of it to the EPF.
- Employer contributes 12%, split as 3.67% to EPF and 8.33% to the Employees' Pension Scheme (EPS).
- The government contributes 1.16% towards pension up to the wage ceiling; employees do not contribute to EPS at all.
- EDLI Scheme: the employer alone pays 0.5% of wages; a member who dies in service after 12 months' continuous employment is covered for ₹2.5 lakh to ₹7 lakh.
- The ceiling governs mandatory coverage under all three EPFO schemes — EPF, EPS and EDLI.
- Central Board of Trustees, EPF: a tripartite body of Central and state government, employer and employee representatives; the provident, pension and insurance funds vest in it.
Practise a UPSC-style question
Consider the following statements about contributions under the Employees' Provident Fund scheme:
1. The employer's 12% contribution is split as 8.33% to the EPF and 3.67% to the Employees' Pension Scheme.
2. The employee's entire 12% contribution goes to the Employees' Provident Fund.
3. Employees make no contribution of their own to the Employees' Pension Scheme.
Which of the statements given above is/are correct?
- (a) 1 and 2 only
- (b) 2 and 3 only
- (c) 1 and 3 only
- (d) 1, 2 and 3
Show the answer
Answer: (b) 2 and 3 only
1 is incorrect: the split is the other way round: 3.67% goes to the EPF and 8.33% to the EPS. 2 is correct: the whole of the employee's 12% of wages goes into the EPF account, none of it to the pension fund. 3 is correct: the EPS is funded by the employer's 8.33% share and the Central Government's 1.16%, with nothing from employees.
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