Almost all salaried employees don’t receive an elusive chunk of their monthly salary due to EPF deductions. Have you wondered what are EPF deductions?
Commonly known as EPF, Employee Provident Fund is typically a post-retirement scheme which is accessible to all salaried employees. EPF is managed by the Employees Provident Fund Organisation of India (EPFO). The EPF and Miscellaneous Provisions Act states that a registered company with more than 20 employees is mandated by law to enroll with the EPFO. Employee Provident Fund is considered to be a great savings platform which aids the employees in saving a portion of their salary each month. As against the global average of 40%, women’s contribution in Indian workforce is pretty low (at a dismal 24%). There are several issues keeping women away from the formal workforce. Catalyst, a leading non-profit social marketing agency states that even a small increase of 10% in the participation rate of women in the workforce could increase India’s GDP by 700 billion dollars (1.4% of the GDP)
In Feb 2018, while introducing the Budget for 2018, it was announced that the government has found a new way to increase women’s participation in the workforce – through incentivization. Finance Minister Arun Jaitley stated that there will be a reduction in the contribution of female employees to the EPFO to 8% from 12%, for promoting the participation of women in the labor force. Amendments will be made in the Employees Provident Fund (EPF) and Miscellaneous Provisions Act, 1952 for reducing women employees’ contribution to EPF. You can check whether your company is registered with EPFO by visiting EPFO’s official website and using the Establishment Search Engine.
The Amendment, Explained.
The labour force participation rate for women is one of the lowest, globally. It is saddening to note that India is ranked 121st out of 131 countries based on women’s participation in the workforce. As compared to the 82% participation rate of men in the workforce, the participation rate for women stands at a meager 28.5%. Research shows that bridging the gender parity would be more beneficial for India as compared to any other region in the world. This move could also bridge the gap between the on paper salary and take home salary, which would eventually increase women’s incentive to work and to participate in the workforce. The modified rule on EPF will be applicable for the next three financial years, starting with Financial Year 2018-19. However, the modification in the Employees Provident Fund (EPF) and Miscellaneous Provisions Act doesn’t have any impression on the employer’s contribution to EPF, i.e, the employer will still be required to provide 12% of the EPF from the salary of women employees. Presently, all the employees are required to contribute 12% of their basic salary as a monthly contribution to the Employees Provident Fund, and the employer makes a similar contribution to the fund.
Additionally, the government has also proposed to contribute to the 12% of the employer’s share of contribution towards EPF for every new employee’s salary; this applies to all sectors of the economy for the next three years. This move is intended to reduce the payroll cost of the employers since the government will be taking the burden of providing PF for the new employees. The government holds that the primary aim of this alteration in EPF laws is to incentivize employment of more women in the workforce by giving them higher take-home salaries.
How Is the Change in EPF Laws Going to Affect You?
Apart from the change in women’s contribution in EPF, the other amendment announced by the government in the Employees Provident Fund (EPF) and Miscellaneous Provisions Act was increasing the Government’s Contribution to the EPF. We know that the EPF paid by the employer is divided into two parts: EPF and EPS (Employee’s Pension Scheme). According to Budget 2016-17, the employer usually makes 3.67% contribution to the EPF and 8.33% towards EPS. The government also makes a contribution towards EPS. This move intended to incentivize employment generation in the country. This year, the government has raised the percentage of its contribution to 12% for all the new employees for the first three years of their employment. This law is applicable on employees with a monthly salary of 15,000 or less. The ways in which these amendments in EPF and Miscellaneous Provisions Act can affect the common population are:
More women entering the formal workforce
One of the primary impacts of a reduction in PF deduction in women’s salary is that the women participation in the formal workforce will increase. A survey concluded that a 10% increase in women participation in Indian work force could raise the GDP by 1.4%. So, as a counter impact, the GDP will also rise.
Since the CTC (Cost to Company) will reduce as a result of higher contribution of the government towards EPF of new employees, companies will start hiring more people. This could help in solving the problem of unemployment in the country.