Support and reduction in Employee’s Provident Fund (EPF) contribution for businesses and workers by the GOI

The wage-earners earning below Rs.15000/- per month in businesses having less than 100 workers are being supported by the Government of India (GOI) by way of Pradhan Mantri Garib Kalyan Package (PMGKP). On 26th March 2020, FM has proposed to pay the entire EPF contribution of both employer and employee for such businesses for 3 months till 31st May 2020. Now, this support has been extended by another 3 months i.e., till 31st August 2020.

Further, the GOI has recently proposed to reduce the rate of contribution of EPF to 10% (vis-a-vis 12%) of employee’s salary for the next 3 months(i.e for June, July, and August) as a measure against COVID-19. The benefit of a reduced rate of EPF does not apply to workers benefited through PMGKP and its extension. Also, the reduction in EPF shall not be available to CPSEs and State PSUs and they are required to contribute 12% of a monthly pay as the employer’s contribution.

The motive behind all these measures is to establish liquidity both in the hands of employer and employee.

The employee’s share of differential PF contribution of 2%(i.e., 12%-10%) will undoubtedly increase the take-home salary of the employee. However, if the employee is considering the tax implications and is willing to make the entire PF contribution of 12% then he can voluntarily do so. This reduced rate of 10% is an aid being offered by the government (it is not mandatory). 

Yet, the question arises on the employer’s share of differential PF contribution, whether it is to be paid to the employee by way of increased salary or it can be retained by the employer?

If the employer pays it to the employee then how would liquidity establish in his hands? And if he doesn’t make the payment of it as salary then shall it be construed as a reduction in CTC, or it depends on the terms of employment?

If the statutory dues are part of CTC then the employer shall pay the differential amount of 2% to the employee. On the other side, the terms of employment provide that statutory dues are over and above the CTC then an employer may retain it. Thus, the contract terms between employer and employee would determine the process of payroll for the next 3 months.

Additional clarification in this regard is expected.

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February 2021