FM announces wage subsidy via EPFO to spur formal employment3 min read . Updated: 12 Nov 2020, 06:52 PM IST
EPFO-registered establishments with up to 1,000 workers will get 24% EPF subsidy - 12% of the employers' share and 12% of the employees. It will reduce human resource cost of employers and also boost take-home pay of low wage earners
New Delhi: Looking to incentivize job creation, Finance minister Nirmala Sitharaman Thursday announced to give a wage subsidy via the employees provident fund organization (EPFO) to spur job creation in the formal sector albeit at the lower rung of the salary threshold.
Under the Atmanirbhar Bharat Rozgar Yojana, the central government will provide EPF subsidy in respect of “new eligible employees" employed between 1 October 2020 and 30 June 2021. The EPF subsidy however, will be given for a period of two years from the date of their employment during the above period.
And new employees have been classified as those with a monthly wage of less than Rs. 15,000, and have never been registered with EPFO earlier. But companies who hire those workers who lost their jobs between 1 March and 30 Sept with a salary cap of Rs. 15000 per month shall also be eligible for getting this subsidy.
Any new employee joining employment in EPFO registered establishments between 1 Oct 2020, and 30 June 2021 on a monthly wage of less than Rs. 15,000 will be eligible for this subsidy. However, these new workers should be the first time entrants into the EPFO system. Besides, the FM also said that the ABRY will also cover workers with a monthly salary of less than Rs.15000 who lost or left their jobs between 1 March and 30 Sept 2020.
“The Atma Nirbhar Bharat Rozgar Yojana is being launched to incentivize creation of new employment opportunities during the Covid recovery phase," Sitharaman said at the press conference. “The Atmanirbhar Bharat Rozgar Yojana will be applicable for eligible new employees joining EPFO-registered establishments and for those who exited these establishments during the COVID pandemic," she added.
But there are several pre-conditions to this subsidy announcement. First, the addition of new employees will be above the base of September employee count. Second, if a company has upto 50 workers by end of September, then it needs to create at least two jobs to get eligible for the EPF subsidy and it will be an addition of “five new employees if reference base is more than 50 employees".
And what kind of benefit the central government will offer? EPFO registered establishment with upto 1000 workers will get 24% EPF subsidy --that is 12% of the employers' share and 12% of the employees share. And if the company has more than 1000 employees, then government will reimburse the 12% share of the new employees added.
While the subsidy to employers will reduce human resource cost of the companies at a time tthey are struggling to recover post the pandemic induced lockdown, the other one will improve take home pay of the low wage earners in the formal jobs as their share of the EPF deductions too will be paid by the government.
Sitharaman said the 24% subsidy will cover more than 95% of the establishment. “The subsidy support will get credited upfront in Aadhaar seeded EPFO accounts of eligible new employees," the FM said indicating that Aadhaar seeding a requirement as it will help track the beneficiary better.
Both industry and experts welcomed the move but requested the government to raise the salary cap of Rs. 15,000. “The FM’s relief package will surely make a positive impact though in a limited way, primarily because the relief is routed through the EPFO rather than a direct wage subsidy, and the EPFO’s coverage notwithstanding the claimed progress is still limited in terms of the existing scheme of coverage of establishments, and the income threshold of ₹15,000," said KR ShyamSundar, a labour economist.
“As growth recovers, we shall see employment numbers also picking up. However, even as we wait for the full normalcy to return, government has laid down a framework for promoting jobs and encouraging companies to consider re-hiring of workers who may have lost their jobs during the lockdown period. The contribution to PF on behalf of employers and employees is a good incentive mechanism. FICCI would only urge the government consider the ceiling wage level of Rs. 15000 for applicability of this as in many parts of the country the average wage levels are higher," FICCI president Sangita Reddy said.