Highlights:
- The Central Government update the EPF rules for 3 months starting May 2020
- The Statutory rate of contribution has been dropped from 12% to 10% for both, the employees and the employers
The Central Government has changed the Employees’ Provident Fund (EPF) rules for a total of three months starting from May which will result in an increased in the in-hand salary without a change in the total CTC (Cost To Company). This step was taken to ease up the liquidity pressure on both, employees and employers.
The government said that the Statutory rate of contribution for both employees and employers will be reduced by 2%, from 12% to 10%.
Currently, the employeers and the employees both contribute 12% each (24% in total) of the Basic Salary and the Dearness Allowance (DA) to the retirement kitty run by the Employees’ Provident Fund Organisation (EPFO). In the new rule the 12% has been cut to 10% (total 20%) for the coming 3 months i.e. May, June and July.
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This means that the employees’ in-hand salaries for these 3 months will be higher by a sum equivalent to 4% of you basic salary and DA.
For example, if the monthly Basic Salary and DA are Rs. 10,000 for you then both you and your employers contributes Rs. 1,000 each instead of Rs. 1,200 to the EPF account. Therefore, as a result, get Rs. 4,000 (contribution of both the employee and the employer) as in-hand salary.
The Ministry of Labour and Employment issued a statement to clarify the same.
“As a result of reduction in statutory rate of contributions from 12% to 10%, the employee shall have a higher take home pay due to reduction in deduction from his pay on account of EPF contributions and employer shall also have his liability reduced by 2% of wages of his employees,” the Ministry said.
The Ministry added, “If ₹10,000 is monthly EPF wages, only ₹1,000 instead of ₹1,200 is deducted from employee’s wages and employer pays ₹1,000 instead of ₹1,200 towards EPF contributions. In Cost to Company (CTC) model, if ₹10,000 is monthly EPF wages, the employee gets ₹200 more directly from employer as employer’s EPF/EPS contribution is reduced and ₹200 less is deducted from his/her wages,”
The Ministry of Labour and Employment also said that the employees, on their own will, can also contribute more than 10% of the Basic Wages to their Provident Fund (PF) for the next three months, however, the employers do not have to match the contribution of the employee.
This reduction in the statutory rate of contribution will not be applicable to establishments such as Central and State Public Sector Companies or any other establishments which are owned by/ Controlled by/ Under the control of Central or State Government.
These establishments shall continue to contribute 12% of the basic salary and DS to the EPF.
