Millions of organized sector employees may soon have the option of reducing their provident fund contribution; currently at 12% of basic salary and therefore increase their takehome pay.
Labour ministry officials said this provision is part of the Social Security Code Bill, 2019, approved by the cabinet and expected to be tabled in Parliament this week. Which may allow employees to pay less than the current 12% statutory contribution but the employer contribution will remain at 12%.
Also, as per the Social Security Code Bill, 2019, fixed-term contract workers will be eligible for gratuity on a pro-rata basis. Currently, workers are not entitled to gratuity before completing five years of continuous service, as prescribed in the Payment of Gratuity Act, 1972.
The employee share of EPFO contribution may vary between 9-12% depending on sectors. The flexibility will help workers to take home a better salary, mint reports.
“Currently, both employees and employers of a formal sector establishment contribute 12% each of the basic salary every month. The rules may not be universal for all sectors and the government may allow this in certain sectors like MSME, textile, and start-up firms, as per two government officials familiar with the development who spoke on condition of anonymity.”
The plan has been on the table for the last five years but with the social security code bill set to be tabled in Parliament, the central government has taken a call on this.
But the change cannot be seen as a move to spur domestic consumption in a slowing economic scenario. The EPFO annual accruals due to the statutory contribution of employee and employer are to the tune of Rs. 1.3 trillion per annum. And, reducing the contribution of employees by two or three percentage points in some sectors will lead to less than Rs. 3,000 crore per annum increase in spending. It’s very little to boost consumption at a time when the GDP has slowed to a six-year low.
