BackLabour ministry to seek cabinet approval on amendments to EPF Act
Among other things, the amendment proposes to club allowances with wages for the purpose of deduction of provident fund
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New Delhi: The labour ministry will go ahead with the amendments to the Employees Provident Fund and Miscellaneous Provisions Act of 1952 that, among other things, proposes to club allowances with wages for the purpose of deduction of provident fund, a provision that can reduce the take-home pay of workers, while increasing the corpus of retirement savings.
Labour minister Bandaru Dattatreya said after a tripartite meeting comprising the government, employees and employers’ representatives that his ministry will take the proposals to the cabinet for approval. “We have to think of every one, workers and industries both," he said when asked if he will incorporate the suggestions made by several stakeholders.
According to the proposal discussed in the meeting, the ministry has defined “contributing wages" as “all remunerations paid or payable to an employee, if the terms of the contract of employment, express or implied, were fulfilled and includes any payment to an employee in respect of any period of authorized leave, lock-out, strike which is not illegal..."
But it shall not include any contribution paid by the employer under the Employees’ State Insurance Act, 1948, travel allowance or any travelling concession, gratuity, “any sum paid to the person employed to defray special expenses entailed on him" and house rent allowance (HRA), which shall not be more than “20% of contributing wages".
The ministry believes many employers divide salary under several allowances to avoid paying a bigger amount for the PF corpus of employees. At present, an employee contributes 12% of his basic wage for PF savings and a matching contribution is made by the employer.
According to the proposed changes, contributing wages shall not be less than the applicable minimum wages notified by central or respective state governments. Once approved by Parliament, the law will be applicable to all firms deploying 10 workers or more from the current rule of 20 workers or more.
But looking at the government’s stress on manufacturing, the ministry has proposed to allow small industries deploying up to 40 workers to pay between 9% and 12%, instead of the mandatory 12%. Also, if the government wishes it can waive the PF contribution made by workers in certain establishments for a certain period of time.
“If the central government is of the opinion that, having regard to the financial position of any class of establishments or other circumstances of the case, it is necessary or expedient to do so, it may, by notification in the official gazette, and subject to such conditions, as may be specified in notification, reduce or waive contribution payable by employees for such period as may be specified in the notification," the amendment proposal said.
The amendment proposal has also made provisions for creating a new scheme for social security benefits of unorganized sector workers and make the National Pension System (NPS) an alternative to the EPF, as announced by finance minister Arun Jaitley in the budget.
Industry representatives said they support making NPS an alternative to EPF but will not like to see expanding the scope of industry coverage from 20 employees and above now to 10 employees and above after the amendments are approved. They also suggested not to cap the HRA portion at 20% of contributing wages.
R.K. Bhardwaj, president of Laghu Udyog Bharati, a small industries association, said if the government wants to create jobs, it has to give incentives to small and medium industries. The present provision of reducing PF contribution to as low as 9% may not give them great relief, but is a good starting point. “When the government is talking about ‘Make in India,’ it should ease compliance of certain laws, including PF requirements," Bhardwaj said.
D.L. Sachdeva, a national secretary of the All India Trade Union Congress, said central trade unions oppose NPS completely and were against giving exemption to small industries in PF compliance. He said NPS cannot be a substitute of EPF, warning that the move will undermine the provident fund.
Labour secretary Shankar Agarwal said the concerns of all stakeholders will be addressed, adding that the objective behind bringing in the changes is to strengthen the delivery of social security benefits.
A labour ministry official said there is little scope for changing any provision in the proposed amendments. The official, however, said the ministry may take a middle path on firms to which the Act shall be applicable. Instead of the proposed 10 employees, they may increase it to 15 to satisfy employers, and to appease trade unions, it may increase some penalties for non-compliance with PF provisions by companies.
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