How Will the New EPF Rule Affect Your Salary and Savings? Let's Discuss the Impact!

Government's New EPF Rule: Implications and Concerns

The government is planning to introduce a new rule where both employees and employers will contribute to the Employees' Provident Fund (EPF) based on gross salary. Currently, contributions are made on basic salary, Dearness Allowance (DA), and food concessions. While the government may be planning this with noble intentions, I have a question.

As per my understanding, this will have a huge financial impact on the entire economy. Company net profits may slow down, employees will have a lower net take-home pay, and the government will bear the burden of paying interest, which may even be counterproductive to the Employees' Provident Fund Organisation (EPFO).

Employer Part:

- Employers may consider changing the pay structure and capacity to minimize employee costs.
- They may choose to opt-out for employees receiving salaries above Rs. 6,500.
- Small organizations might not enroll their employees' names and instead make cash payments.

Employee Part:

- Employees' net salaries will be reduced, which may affect their family budgets, especially for those paid minimum wages.
- On the other hand, employees' savings will increase and be beneficial in the future. The amount will multiply, resulting in a handsome sum during retirement or withdrawal. Personally, I prefer this aspect as my savings will increase.

This may be a challenge for HR to convince employees, especially those with lower salaries, as they don't have any option but to opt-in. We need to highlight the benefits to them and present a vision of a secure future.

I would like to have your views and opinions on the same.

Regards,

Shaikh Abedeen

Human Resources Professional

I respect the decision of government authorities. However, my personal view is that I would like to have a pleasant present rather than a secure future. The future is next to the present, which is very unpredictable and uncertain. The present is very important, and to survive this stage, a person needs money. I cannot starve today in the hope that I will have orange fields tomorrow.

In my opinion, there is nothing to worry about as, whatever the limit and inclusion of other items such as various allowances, etc., in the definition of Basic Wages, the employer is not bound to contribute his share over and above the prescribed limit (presently Rs 6500), provided the employee is already receiving a higher contribution benefit either in the present employment or had it in his earlier employment before joining the present employment.

Further, if the employer is contributing his share based on a higher salary beyond the statutory limit, he can reduce his share with the permission of the RPFC by providing suitable reasons.

Regards,
AK Chandok RPFC (Retd.)

[Note: The link mentioned in the original text has been removed.]

As with most policies, I am sure the government will provide some scope for creativity within the law. From the current perspective, if an employer is paying Rs 780 per month towards the PF contribution of an associate, they are fulfilling compliance with the law. Therefore, the government either needs to remove this ceiling or allow Compensation and Benefits Managers to apply their own creativity to resolve the matter in the best interest of both their employees and the employer.

Best Regards,
Himanshu Pant

The government was planning to implement the same in November '12, but the employers denied its implementation, citing various reasons (as mentioned by Abedeen7). Don't worry, as it won't be implemented. Even if the government tries to force it, employers and employees always have the choice of moving out, as PF is voluntary.

Regards,
Bhavik Mehta

I have also seen the news on the news channel regarding the government's plan to implement this. It will definitely affect all sections, whether they receive low or high salaries. However, the weaker sections will be more affected for their current survival because even they do not want to contribute to the PF on the basic, and what if it will be deducted from the gross?

They will receive a lower take-home salary, making it tougher for them to support their families. For high-paid individuals, it will also have an impact because they already have their own personal savings/insurances for future contingencies. If they receive a reduced salary due to the new PF impact, it will lead to mismanagement of funds for them due to high premiums on insurance and other expenses.

In short, an HR person can differentiate and understand the new rule and the previous one of PF and may prefer the new one (I suppose), but the majority will likely be against it.

Best regards,
Sunita Dhoundiyal

Hello friends! I understand there is already a concept of VPF where an employee can opt to deposit more EPF from their salary apart from the standard percentage, which stands good enough. However, imposing EPF deposit on gross shall actually affect both the employer and employee at large. Securing a financial future is an important aspect, but in that direction, a minimum contribution is viable enough. The later part should be left to the subject person as a working professional or even a worker nowadays smart enough to plan their future.

I think this proposal requires serious reconsideration.

Regards,
Anil Richhariya
Associate Manager - GMR Group

I would like to know if the government wants to calculate PF based on the gross salary, will the Pension increase or not? Is there a breakdown of PF and Pension Fund in this new structure?

Regards,
Saurabh