EPFO news: The Ministry of Labour and Employment has proposed to the Union Ministry of Finance to consider raising the wage ceiling from Rs 15,000 to Rs 21,000 for calculating employees’ provident fund, according to sources.
Since September 1, 2014, the Centre has kept the maximum wage limit for provident fund deduction for employees fixed at Rs 15,000 under the Employees’ Provident Fund Organisation (EPFO). Earlier, the wage ceiling for employee contributions under EPFO was Rs 6,500.
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Sources said the labour ministry finalised the proposal after considering various recommendations and after the April meeting of the Central Board of Trustees (CBT), EPF. The CBT is a statutory body constituted by the central government. The proposal was, however, sent to the finance ministry in July after the Lok Sabha polls were over and the new government at the Centre was formed.
Under EPFO rules, PF contributions are based on an employee’s basic salary. Both the employee and employer are required to contribute 12% each to the EPF account. The full amount of the employee’s contribution goes into the provident fund account, while 8.33% of the employer’s contribution is allocated to the Employees’ Pension Scheme (EPS), with the remaining 3.67% going into the provident fund account.
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Wage ceiling hike impact on EPF and EPS contributions and retirement pension
If the Ministry of Labour’s proposal is approved, it would affect the contributions made to the EPF scheme and the Employees’ Pension Scheme (EPS), ultimately influencing the pension amount an employee is entitled to upon retirement.
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What will be the new EPS contribution after the proposed wage hike is effected?
Currently, EPS contributions are calculated on the basic salary of Rs 15,000 per month, limiting the maximum contribution at Rs 1,250 per month. If the government hikes the wage ceiling to Rs 21,000, this contribution will increase to Rs 1,749 (8.33% of Rs 21,000).
An increase in the wage ceiling under the EPF scheme will also result in a higher pension amount at the time of retirement. According to the Employees’ Pension (Amendment) Scheme, 2014, the formula to calculate the EPS pension is as follows:
(Number of years of pensionable service X Average monthly salary for 60 months)/70.
Pensionable service period: Pensionable service refers to the period during which an employee actively contributed to the EPF and EPS accounts.
The formula for calculating the EPS pension was revised by the EPFO in 2014. Before this amendment, the pensionable salary was determined by the average basic salary of an individual’s last year of service.
