Salary (CTC) calculation: The recent announcements by the Government of India to provide relief during COVID-19 pandemic are expected to increase the take-home salary of employees for three months. The government has cut the mandatory EPF contribution by the employer and employee to 10 per cent each. As a result of this, the take-home salary of the employee will increase, benefitting around 4.3 crore employees/members and employers of 6.5 lakh establishments, according to the Employees Provident Fund Organisation (EPFO).
As per the EPF rules, 12% of the Basic + Dearness allowance of employees need to be contributed by both employees and employers towards EPF. However, due to COVID-19 pandemic, the government has relaxed norms and allowed minimum 10 per cent contribution towards EPF by both for three months. Under the Atmanirbhar Bharat Package, “the statutory rate of EPF contribution of both employer and employee has been reduced to 10 per cent of basic wages and dearness allowances from existing rate of 12 per cent for all class of establishments covered under the EPF & MP Act, 1952,” EPFO says.
The statutory rate of contribution will now be 10 per cent for wage months – May, 2020, June, 2020 and July, 2020. It will apply to all applicable to all class of establishments covered under the EPF & MP Act,
1952, except the establishments like Central and State Public Sector enterprises or any other establishment owned or controlled by or under control of the Central Govt. or State Govt, according to EPFO.
Impact of reduced rate of contribution
EPFO says that as the result of contribution cut from 12 per cent to 10 per cent will lead to a higher take home pay for employees. For example, if Rs 10,000 is the monthly Basic+DA (EPF wages) of an employee, only 1000 instead of 1200 will be deducted employee’s wages. The employer’s contribution towards EPF will also be only 1000
CTC calculation: Benefit to employee from EPF contribution cut
Under CTC model, if the monthly EPF wages of an employee is Rs 10,000, then he/she will get Rs 200 more directly from the employer as the share of the employer’s contribution to EPF/EPS will be reduced and Rs 200 less will be deducted from his/her wages, according to the FAQ on reduced rate of contribution released by EPFO.
What if someone gets Rs 30,000 or Rs 40,000 as EPF wages in CTC?
- When Basic+DA is Rs 30,000: Deriving from the EPFO FAQ, the employee and employer’s contribution will be Rs 3000 (10%) each instead of Rs 3600 (12%) for next three months. The employee will hence get the balance of Rs 600 in monthly salary in June, July and August.
- When Basic+DA is Rs 40,000: Deriving from the EPFO FAQ, the employee and employer’s contribution will be Rs 4000 (10%) each instead of Rs 4800 (12%) for next three months. The employee will get the balance of Rs 800 in monthly salary in June, July and August.
As per the EPFO, the reduced rate of contribution of 10 per cent will be applicable even to those registered with EPFO during wage months May, 2020, June 2020 and July, 2020.
The employer and the employee can contribute more than 10 per cent towards EPF in the next three months.
