EPFO in India Mulls Raising Monthly Minimum Wage Ceiling After a Decade

India’s Employees’ Provident Fund Organization (EPFO) is reportedly considering raising the monthly minimum wage ceiling from INR 15,000 to INR 21,000 in order to improve coverage and bring under its purview millions of informal workers.

India has been mulling over revising the minimum wage slab, and as per media reports, the same was discussed in meetings of the Employees’ Provident Fund Central Board of Trustee (CBT).

The proposed increase comes a decade after the last hike and is an attempt to extend social security benefits in India to those working in the unorganized sector, i.e. about 94 percent of the workforce. 

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India is contemplating enhancing the wage ceiling under the EPFO from INR 15,000 (US$179.76) to at least INR 21,000 (US$251.67) to widen social security coverage. As of February 2024, just over 290 million people are subscribed to the EPFO.

The minimum wage ceiling under EPFO was last raised in 2014 from INR 6,500 (US$77.9) to INR 15,000.

Expanding EPF inclusivity 

In June 2023, EPFO took action to streamline the procedure for qualified employees to apply for a higher pension under its Employees’ Pension Scheme (EPS). The procedure was rolled out to make it feasible for people to get greater pension benefits even in the absence of an employer’s consent or joint request.

Among recommendations made at the 235th meeting of the CBT, held on February 10, 2024, is to raise the minimum pension to INR 3,000 (US$35.95). Another proposal under consideration is to lower the limit of institutions covered by social insurance to 10 employees from the current 20 employees. It has also been reported that the CBT members are introspecting into a quick solution for old age pensions.

Present provisions offered by EPFO

Notes:

• # In case the establishment is exempted under the PF Scheme, inspection charges @0.18%, minimum INR 5/- is payable in place of admin charges. In case the establishment is exempted under EDLI Scheme, inspection charges @ 0.005%, minimum INR 1/- is payable in place of admin charges.
• * Contribution is rounded to the nearest rupee for each employee, for the employee share, pension contribution, and EDLI contribution. The employer share is the difference of the EE share (payable as per statute) and pension contribution.
• ** Contribution is rounded to the nearest rupee for each employee, for the employee share, pension contribution, and EDLI contribution. The employer share is the difference of the EE share (payable as per statute) and pension contribution.
• *** Monthly payable amount under EPF administrative charges is rounded to the nearest rupee and a minimum of INR 500/- is payable. If the establishment has no contributory member in the month, the minimum administrative charge will be INR 75/-.

Source: ContributionRate.pdf (epfindia.gov.in)

Key considerations

• Qualification for pension: This may involve requirements like minimum service duration, age criteria, and decisions regarding early or delayed pensions.
• Computation of pension amount: The EPFO offers clarification on how factors such as salary, contributions from both employee and employer, and tenure of service influence the final pension amount.
• Additional perks: EPFO also lists regulations concerning survivor benefits, withdrawal options, or nomination procedures. It is worth noting that EPFO members contributing for at least a decade make an employee eligible for a pension at 58 years old. The EPFO encourages delaying pension claims, offering an 8 percent increase in the pension amount for each year deferred until age 60. This choice allows for potentially accumulating a larger pension fund, resulting in higher monthly payouts during retirement.
• Employee Pension Scheme (EPS): 8.33 percent is allocated to the EPS, providing a pension benefit to the employee upon retirement.
• Provident Fund (PF): The remaining 3.67 percent is directed to the EPF, building up savings for the employee.
  Members can request an early pension starting at age 50 if they’ve served for at least 10 years. However, opting for an early pension leads to a reduced pension amount. Moreover, employees can choose to voluntarily contribute more than 12 percent of their basic salary to their PF. Nevertheless, employers are not obligated to match contributions exceeding the mandated 12 percent.

Understanding the EPFO’s clarifications is crucial for employees to grasp their pension benefits and plan effectively. Awareness of the contribution structure and pension eligibility allows employees to anticipate their future benefits and assess if additional savings are necessary.

Summary

While India has established itself as one of the fastest-growing economies in the 21st century, approximately 92.4 percent of the workforce is engaged in the informal sector, leaving the majority with no social security. Raising the minimum wage can help low-paid workers have more savings, which will increase consumer spending and grow the economy as a whole.

(US$1 = INR83.44)

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