Govt links job creation sops to growth in company’s headcount
There were concerns that firms may let go of existing employees and hire replacements to avail of the incentives
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New Delhi: To prevent the misuse of incentives offered for job creation, the government has specified that companies will have to increase the headcount they had as of 31 March 2016 to qualify for the benefits in the current financial year.
There has been concern that companies may let go of existing employees and hire replacements to avail of the incentives offered by the government.
To allay the concern, the labour ministry has now said that 31 March 2016 will be the base over which it will pay companies if they create new jobs in the current financial year. Similarly, in the next financial year, the base will be 31 March 2017.
Finance minister Arun Jaitley said in his February budget statement that from 1 April 2016, the central government will pay the employee pension scheme (EPS) contribution of 8.33% for all new employees drawing a salary of up to Rs.15,000 a month. The finance minister set aside Rs.1,000 crore in 2016-17 for this purpose.
Employees drawing a salary of up to Rs.15,000 a month mandatorily pay 12% of basic pay as employees’ provident fund (EPF) contribution. A similar amount is paid by their employer under two heads—8.33% under EPS and the remaining 3.67% as EPF. Both EPS and EPF are managed by the Employees’ Provident Fund Organisation. In most cases, this EPS portion is also part of the employees’ overall salary.
So, if the government pays 8.33% as EPS contribution, an employer will not need to deduct that money towards EPS and the portion may instead get added to the employee’s take-home salary. In the textiles sector, the government will pay 12% of the salary of new recruits.
It also meant that where employers contribute to the EPS corpus above the total salary amount of a low-paid employee, from 1 April, it’s the government and not the employer that will pay this amount.
Companies registered after April 2016 can claim financial incentives from the government for all eligible employees as they don’t have a base year.
Fresh hires are those who have not worked earlier, don’t have a universal account number (UAN) and haven’t made an EPF contribution, the government said in follow-up guidelines shared among various ministries.
As per the new guidelines, to avoid any duplication, the government will verify the number of people employed in a company through the electronic challan-cum-returns or ECR that companies file to submit PF contributions online, and UAN and PAN details to ascertain whether a person was employed previously.
“What we are trying to do is creating a system where companies cannot misuse government money. We are trying to put up a fool-proof system where only fresh job creations are incentivized,” said a labour ministry official on condition of anonymity.
The National Democratic Alliance government is trying to incentivize employers for creating new jobs at a time when new jobs are scarce. Some 12 million people enter the job market every year but employment hasn’t kept pace.
“We have always maintained that the country needs more jobs but paying taxpayers’ money to corporate houses for job creations is a little too much. It means the government has accepted that its policies and promises are not leading to more jobs,” said D.L. Sachdeva, national secretary of the All India Trade Union Congress, a central labour union.
As per the new guidelines, a copy of which was reviewed by Mint, if the base employment number of a firm falls at any time, the company will not be eligible for any incentives; the government will pay the EPS contributions for a period of three years only if a new recruit works with the company for at least as many years.
“The employers will continue to get the 8.33% contributions paid by the government for eligible new employees for next three years, provided they continue in employment by the same employer,” the guidelines said. “The 8.33% contribution will be paid by the government after the employer has remitted the 3.67% EPF contribution.”