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COVID-19 impact : Govt Revises EPF Contribution Cut

Employee Provident fund organization

On Monday, Ministry of Labour and Employment, announced a revision in the rate of provident fund contribution. Now, employees and employers, have to pay 10% of their salaries to the employees provident fund (EPF) as opposed to the existing 12%. This will effectively increase the take-home salary of 4.3 provident fund subscribers while providing relief to 6.5 lakh establishments.

A few days ago, Finance Minister Nirmala Sitharaman had announced this reduction in provident fund rates amongst other relief measures, under the Government’s Atma Nirbhar Bharat Abhiyan economic stimulus, worth ₹20 Lakh Crore. This new announcement by the labour ministry, has unveiled the specifics, under this revision.

This cut would be applicable for the salaried months of May-June-July to all establishments covered under the Employees Provident Fund Organisation including the exempted establishments. Both private sector employees and employers will be benefited from this move. The Government, as the employer of all public sector employees, will continue paying 12% into the fund. But, both state and central public sector employees will be paying 10% as their share, for the next 3 months.

In its notification, dated May 18, the Labour Ministry said, “In exercise of powers conferred by first proviso to section 6 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952), the central government, after making aforesaid inquiry, hereby makes the following amendments in the said notification number S.O. 320 (E) dated the 9th April, 1997.”

The notification further added, “Whereas, due to COVID-19 pandemic, lockdown is in force across the country and the central government after making necessary inquiry is satisfied that to provide liquidity in the hands of employers and employees, there arises a need to amend the notification of the government of India in the Ministry of Labour, dated 9th April, 1997.”

Industry experts are requesting that this rate cut in PF contributions be extended up to March 2021 as this is a liquidity enhancing measure and has no bearing on government finances directly. Lohit Bhatia, president of the Indian Staffing Federation said, “By announcing the cut in PF rates of contribution, the government has reduced the employment cost as well as increased the net take home salary for employees. However, it is time bound for.”

In light of the skyrocketing unemployment rates, some labour experts are expressing their apprehension about any real effect, this rate cut might have, on PF-subscribing employees who need it. “These measures will translate into actual reliefs if and only if employees are called back for work and they get their salaries,” labour economist KR Shyam Sundar at XLRI, Jamshedpur.

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