Retirement fund manager EPFO will seek the legal opinion on implementation of the order of the MP High Court throughout the country under which employers and employees will be required to increase their contributions to the provident fund. “We will seek legal opinion and also the opinion of Ministry of Law and Justice Ministry, through Labour Ministry, on the MP High Court order throughout the country,” Central Provident Fund Commissioner Samirendra Chatterjee said.
The Madhya Pradesh (MP) High Court in its recent order said that regular allowances like conveyance, entertainment, medical etc should be included in the salary while computing the 12 per cent contribution to provident fund.
At present, the provident fund contribution, which is mandatory for all employees, forms 12 per cent of the basic pay. Employer is also required to contribute the matching amount.
The court order would be implemented by the Employees’ Provident Fund Organisation (EPFO) in Madhya Pradesh, Chatterjee said, adding the decision on extending it across the country would be taken after seeking the legal opinion.
The implementation of the order will put extra burden on employer and reduce the take home salary of the employee, as both will be required to enhance their contribution to the retirement fund.
If this order implemented it is going to be huge burden on both employer and employee. Specially employees will have to bear the heat . if we take the example of a worker getting Rs.5000.00 as a total salary his take home will become 3800.00 and from his gross pay Rs.1200.00 will be deducted assuming Rs.5000.00 as CTC
On the positive side, the decision will significantly enhance the corpus of the EPFO, which has recently appointed four fund managers to manage its Rs 3.5 lakh crore, and enhance better returns at the time of retirement for its 4.72 crore subscribers.
A concern is employing 100 persons. Majority are the labour / supervisor class - around 85%. Recently, this minimum wages (Gross) was raised to Rs 7000. Their salary structure had Basic of Rs 4000 and the rest as allowance (which is probably the highest in the region!).
The management, after this circular, is mulling the following:
1. Subscribe to the existing EPF with the enhanced rates of (12% of 7000) 840 instead of the earlier 480.
2. Re-recruit the persons at minimum wages of Rs 8000 (after getting their resignations and waiting for sometime before recruiting them again). This time, since their Basic+Allow is more that the statutory limit of Rs 6500, they will be out of the EPF! Result - the workers getting more money every month (which they are happy with more take-home) and their savings through EPF is nil!
I think this circular is not beneficial for the lower income group - unless the limit of Rs 6500 is raised to Rs 10000 or Rs 15000 (like ESI).
In many organizations employees provided with uniform clothing receive washing allowance. In some organizations employees receive canteen allowance in the absence of a canteen.In some, employers pay transport allowance in the absence of their own transport. I am of the view that if such allowances are to be included for PF purpose, it will be a huge burden on the employer. Also such a move may prompt employers to reduce the facilities, which are not statutory, given to employees as a welfare measure.
I seek the opinion of others in various industries.
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