Wage Ceiling Has Been Raised to ₹25,000: But Will It Deliver a Dignified Pension

Summary: The Central Government’s increase in the compulsory EPF wage ceiling from ₹15,000 to ₹25,000, effective 17 September 2026, expands potential provident fund, pension and insurance coverage for workers in organised establishments. CA Dr. Dilip Satbhai examines the additional employee and employer contributions, long-term adequacy of EPS pensions, inflation and purchasing power, the definition of wages under the Code on Social Security, and complications for previously excluded workers. The article also considers EDLI insurance and claims, nominee registration, mid-month payroll and ECR adjustments, increased employer costs, and the need for indexed wage ceilings, improved pensions, transitional measures and protections for gig and unorganised workers.

The Central Government has decided to raise the wage ceiling for compulsory membership of the Employees’ Provident Fund Organisation (EPFO) from ₹15,000 to ₹25,000, and the change has come into force from 17 September 2026 through Gazette Notification S.O. 5109(E). Before settling on this figure, the Finance Ministry had also considered an even higher ceiling of ₹30,000. The ceiling was last revised in 2014, when it was raised from ₹6,500 to ₹15,000. Coming after a full twelve years, this increase is certainly significant. At present, the EPFO has 36.51 crore registered members, of whom about 7.5 crore contribute regularly. According to the Government, more than 51 lakh employees earning a monthly wage between ₹15,000 and ₹25,000 will now get the opportunity to come under the EPF, the Employees’ Pension Scheme (EPS) and the insurance cover of the Employees’ Deposit Linked Insurance (EDLI) scheme. The Central Government has thus taken a big step towards the social security of employees. However, no social security decision is complete merely because the number of beneficiaries goes up. Its long-term financial consequences, the practical difficulties in implementing it, and whether the benefits received after retirement will actually be adequate must all be considered as well. Moreover, this decision will increase the cost of compliance for both companies and the Government. At present, compulsory EPF and EPS coverage applies only to establishments employing 20 or more people. Smaller companies may register voluntarily, but they are under no obligation to do so. As a result, gig workers and those working for companies such as Swiggy or Zomato will still not get any real benefit. This change is largely confined to the organised private sector — Central Government employees have their own separate pension arrangement and therefore do not fall under the EPS. The EPFO has made it clear that a company must not recover its increased share of the contribution from the employee’s CTC (cost to company).

What Will Change for Workers?

With the contribution ceiling raised to an eligible wage of ₹25,000, the employee’s own 12 per cent deduction can rise from ₹1,800 to as much as ₹3,000, depending on the wage. The employer and the employee will each contribute a maximum of ₹3,000 per month based on their wage structure. However, while the employee’s entire contribution goes into the Provident Fund, the employer’s contribution is split: 3.67% goes to the Provident Fund, 8.33% to the Employees’ Pension Scheme, and 0.50% to the EDLI. For example, on a salary of ₹20,000, the Provident Fund contribution (from the employer’s share) will be ₹734, while ₹1,666 will be transferred to the Pension Scheme. Employers separately contribute 0.50% of the basic salary towards the EDLI scheme, and nothing is deducted from the employee’s salary for this. So, ₹100 goes into the EDLI. The most important point here is that the Provident Fund balance earns interest at 8.25%, but the balance in the EPS earns no interest at all. This serious flaw still exists today, and it is one of the reasons why pensions turn out to be so low.

Employees’ Savings Will Grow:

Earlier, on a wage of ₹15,000, the employer and the employee each contributed ₹1,800 — a total of ₹3,600 — to the Provident Fund. This amount has now gone up to ₹6,000 per month. So, even though the new change means slightly less money in hand today, long-term retirement savings are likely to grow. But this is exactly where an important question arises. Under the traditional EPS formula, the pension is calculated as ‘pensionable salary’ multiplied by ‘years of service’, divided by ‘70’. If we assume a wage ceiling of ₹25,000 and 35 years of eligible service, the pension works out to ₹25,000 × 35 ÷ 70, that is, ₹12,500. In other words, when this employee retires 35 years from now, he will receive a pension of ₹12,500 under the new rules. Will that amount be of any real use at that time? What will ₹12,500 be worth in the year 2061? Taking inflation into account, will its value then be enough to live with dignity? The answer to this question will, sadly, be “no”. If the employee cannot contribute more than this, and if receiving a dignified pension in his economically non-productive years is regarded as his right, then the Central Government should bear a large share of the burden — or the deduction should be made on the entire salary rather than only on basic pay plus dearness allowance — or the share of the employer and the employee should be raised from 12% to 25%. Otherwise, such an increase will look good only on paper and will be of little real use. Of course, the actual pension also depends on the applicable rules, the length of service and other provisions, and these too must be taken into account; even so, the purchasing power of a fixed pension received after many decades is a matter that deserves separate consideration. According to information available from the EPFO, the EPS pension calculation is based on this very basic formula.

What Exactly Does ‘Wages’ Mean?

The most important — and most often overlooked — part of this reform is the question of which wages the ₹25,000 ceiling actually applies to. The definition of ‘wages’ under the Code on Social Security is not simply tied to gross salary. It basically includes basic pay, dearness allowance and retaining allowance, while certain allowances and other payments are excluded. However, if the total of these excluded components exceeds 50 per cent of the total remuneration, the excess amount must be added back into ‘wages’. Therefore, trying to stay out of the EPF net by keeping the basic salary low and spreading the rest across various allowances will not always be safe. In the Vivekananda Vidyamandir case, the Supreme Court has also drawn attention to attempts to avoid PF by artificially splitting wages. Employers must therefore look not just at the figures but at the real nature and regularity of each payment while designing a salary structure.

Example 1

Gross salary is ₹24,000, of which basic pay + dearness allowance = ₹12,000, and house rent allowance + conveyance allowance + other allowances = ₹12,000. Here, the excluded portion = 50%. So, wages for EPF = only ₹12,000. Even though the gross salary is ₹24,000, the employee escaped EPF because his wages were shown as below ₹15,000.

Example 2

Gross salary is ₹24,000, of which basic pay + dearness allowance = ₹11,000 and other allowances = ₹13,000. Other allowances thus amount to 54.16%, which is more than 50%; the excess of 4.16% = ₹1,000. So, wages for EPF = ₹11,000 + ₹1,000 = ₹12,000. Even so, it still remains below ₹15,000. This is what is called the “50% test”. A shrewd employer always keeps basic pay + dearness allowance at ₹14,900 and keeps house rent allowance and the like within 50%, so that wages stay below ₹15,000 — and will now stay below ₹25,000.

The Problem of Previously ‘Excluded Employees’

It is therefore necessary to separately verify the records of existing employees, their UAN (Universal Account Number), their EPS membership and their earlier membership status. The new change has also given rise to an important transitional question. Earlier, an employee who joined on a salary above ₹15,000 was excluded from EPF. An employee who remained outside compulsory EPF coverage because he joined on such a higher salary may now become eligible under the new rules if his eligible wages are up to ₹25,000 — provided he meets the other applicable conditions. Now, a new employee joining on ₹20,000 will compulsorily come under PF from 17 September. But what about the pension of an employee who was excluded in 2018 at ₹20,000 and is still on ₹20,000 today? He will now enter the EPS afresh at the age of 40, and he will receive a very small pension. For workers, the amount being saved will increase: earlier a maximum of ₹3,600 (employee + employer) was deposited; now it will be ₹6,000. Some 51 lakh new workers will get PF, pension (EPS) and insurance (EDLI). One important point here: under the earlier wage ceiling of ₹15,000, the EDLI provided eligible members a maximum insurance benefit of ₹7 lakh. With the wage ceiling raised to ₹25,000 from 17 September, the maximum benefit will now rise to ₹10.50 lakh. For the Government, the funds with the EPFO will grow, which the Government can use for infrastructure. The formal economy will expand. “Through EPF reform, we are moving towards social security.”

Insurance Benefits Under the New Wage Ceiling

Most EPF members know about the retirement savings benefits of this scheme, but many may not know that membership also provides an insurance benefit, at no extra cost, in the event of death while in service. This benefit is provided under the ‘Employees’ Deposit Linked Insurance’ (EDLI) scheme, and its entire cost is borne by the employer. Linked to the ‘Employees’ Provident Fund’ (EPF) scheme, this scheme provides financial support to the nominee or an eligible family member if the employee dies while in service; no separate insurance premium has to be paid for it. Under the earlier wage ceiling of ₹15,000, the EDLI provided eligible members a maximum insurance benefit of ₹7 lakh. With the wage ceiling raised to ₹25,000 from 17 September, the maximum benefit will now rise to ₹10.50 lakh. Earlier: (₹15,000 × 35) + ₹1.75 lakh = ₹7 lakh. New ceiling: (₹25,000 × 35) + ₹1.75 lakh = ₹10.50 lakh. The EDLI benefit is based on the employee’s average monthly wages over the previous 12 months (subject to the applicable wage ceiling), plus an additional amount linked to the average EPF balance. The ₹1.75 lakh component also plays an important part in determining the final amount payable. If the Government raises this amount as part of changes to the EDLI rules, the maximum insurance benefit could increase further. Establishments with more than 20 employees must register for EPF. Therefore, any employee who comes within EPF membership is automatically eligible for the EDLI scheme. However, if an EPF member dies after his employment has ended, EDLI benefits are not paid.

Precautions to Take to Receive the Insurance Benefit

According to information on the EPFO website, to receive the insurance benefit under the Employees’ Deposit Linked Insurance (EDLI) scheme, the employee must be an active member of the Employees’ Provident Fund (EDLI) scheme at the time of death. In other words, at the time of death, he must be working in an establishment covered by the EPF scheme. To ensure that benefits under the EPF and EDLI schemes are received without any hurdle, employees must register their nominee through the EPF Member Portal and keep the details updated from time to time. Important events such as marriage, a change in family members, or a change in the nominee’s details must be recorded by way of a nomination. The insurance amount under the EDLI scheme is paid to the nominee registered by the employee. If no valid nomination is available, eligible family members or legal heirs may claim the benefit by following the prescribed procedure. To receive the insurance amount, the nominee must fill in and submit EDLI Form 5 IF, available on the EPFO website. This form must be signed and attested by the employer concerned. In addition, the necessary documents — such as the deceased employee’s death certificate, identity proof, address proof and bank account details — must be submitted along with the form to the concerned Regional EPF Commissioner’s office. According to the retirement fund body, once all the documents required for the claim have been submitted and the claim is found eligible for approval, the EPF Commissioner concerned must complete the processing within 30 days of receiving the claim. It is therefore important for employees to register their nominee while still in service and to keep those details up to date.

Shortcomings in the Decision

1. A Mechanism Linked to Inflation Is Needed

Instead of jumping straight from ₹15,000 to ₹25,000, a mechanism linked to inflation should have been introduced. Rather than changing the ceiling twelve years after 2014, if it had been linked to the inflation index or a suitable wage index and automatically revised every two or three years, the Government would not have needed to take a separate decision each time. In 2014 the inflation index stood at 240, while in 2026 it is 384. Applying this index to the amount of ₹15,000, its value in 2026 is ₹24,000 — and the Central Government has raised the ceiling to ₹25,000, a nominal increase of just ₹1,000. In terms of purchasing power, one would have to say that nothing has really changed.

2. EPF and EPS Should Have Been Considered Together

More money being deposited in the Provident Fund is a good thing; but if the pension received after retirement is not adequate, the purpose of social security remains unfulfilled. A proper study should clearly consider options for raising the minimum pension and linking it to the inflation index. The Government, too, should share the burden and support the worker’s social security until the worker is able to stand on his own feet. Lakhs of employees in this scheme were receiving a pension in only two digits; the present Government has given them relief by raising it to a minimum of ₹1,000, but it is also an undeniable truth that this is not enough.

3. A ‘Transition Scheme’ Is Needed for Previously Excluded Employees, Along with New Ones

For employees who, in 2014 or later, remained outside compulsory Provident Fund coverage because of their higher salaries, a separate transition option was needed to address how their past service would affect their EPS when they are now suddenly brought into the new system.

4. The Definition of ‘Wages’ and the Question of Salary Structure Should Have Been Made Clearer

To avoid confusion among industry and employees regarding basic pay, dearness allowance, other allowances and the 50% rule, the Government should have made available, well in advance, clear rules with examples, Frequently Asked Questions (FAQs) and payroll guidance.

5. Difficulties Caused by Implementation in the Middle of the Month

Implementing the decision in the middle of the month has created administrative difficulties; the month of September had to be split into two parts — ₹15,000 up to 16 September and ₹25,000 from 17 September. Because the ceiling changed from 17 September, a transition problem arose in payroll, ECR (Electronic Challan-cum-Return), PF and EPS calculations. Had at least one clear transition period been allowed for such a major compliance change, the strain on both industry and the EPFO would have been reduced. Besides this, the EPFO had to issue FAQs on how to show two different ceilings in the ECR for the same month. No payroll software was ready. Everyone faced difficulties in working out the amounts.

6. For Workers — Less Salary in Hand:

For a worker earning ₹20,000, the Provident Fund contribution will rise from ₹1,800 to ₹2,400. That means ₹600 less in hand every month. For this class of employees, who have to count every single rupee, this is a big amount. Similarly, a person earning ₹25,000 will get ₹1,200 less. This is a major financial blow for low-paid workers, and they may well worry about where to find that money.

7. Rising Costs for Employers and MSMEs

An important aspect of these reforms is the additional financial burden on employers. For every employee earning between ₹15,000 and ₹25,000, the employer’s cost may rise on account of the Provident Fund, the Employees’ Pension Scheme, the Employees’ Deposit Linked Insurance scheme and administrative charges. In some cases, this additional cost may go up to a maximum of ₹1,200 per employee per month. For example, a company with 100 employees may have to bear an additional burden of about ₹1.20 lakh every month. For Micro, Small and Medium Enterprises (MSMEs), which employ workers in large numbers, this increase will certainly be significant from a financial planning point of view. Because of these rising costs, some employers may consider keeping fewer than 20 employees, or getting work done through contractors instead of regular employees. As a result, one cannot rule out the possibility that the very reforms meant to extend the social security umbrella to more and more workers may push some workers away from formal employment. Therefore, while expanding social security, it is also necessary to consider the financial capacity of industries and the possible impact on job creation. In particular, to ease the financial strain on small businesses, the Government could have considered measures such as bearing the additional contribution for a limited period, or offering other incentives and concessions. However, it would also be wrong to view these reforms merely as a system that increases employers’ costs. The Provident Fund, pension and insurance cover provide support for employees’ future financial security. Further, when employees receive social security benefits, it can strengthen their commitment to the organisation and help retain skilled staff. But to reap these positive effects, a proper balance must be struck between the increased costs and the goals of social security. For this, employers need to review their salary structures, appointment letters, payroll software, accounting systems and the monthly Electronic Challan-cum-Return (ECR), and make the necessary changes in time. In this way, strengthening the social protection of workers while preserving the financial viability and job-creating capacity of small and medium enterprises will be key to the success of these reforms.

8. While Expanding EPF Coverage, a Separate Social Security Model for Gig and Unorganised Workers

Merely bringing salaried employees of formal establishments under PF does not bring India’s entire workforce under social security. It is therefore necessary to develop social security more effectively for workers outside the PF system.

9. Most Important of All — Make the Wider Impact Public Before the Decision

There must be a public financial blueprint showing how much additional money will flow into the EPF because of the higher wage ceiling, how much the EPS liability will increase, what the Government’s contribution will be, and how the fund will remain sustainable over the next 20–30 years. The EPFO’s own official tender documents clearly mention the need for an actuarial study of various scenarios for a higher wage ceiling and of EPS sustainability.

Summary

The question is not merely whether raising the EPF wage ceiling to ₹25,000 is right or wrong. This increase is an important step towards social security; but it is not the final reform. The real question is: in providing social security, has a balance been struck between today’s employee’s take-home income, tomorrow’s pension, the employer’s cost and the long-term financial sustainability of the EPFO? Had the Government, along with raising the wage ceiling, introduced an inflation-linked ceiling, an adequate pension under the EPS, a transition arrangement for older employees and phased implementation for MSMEs, this reform would have been far more comprehensive. Social security is not merely a system for depositing more money today; it is a guarantee that one can live with dignity tomorrow.