Centre curtails EPF contributions by 2%, move likely to benefit 650,000 firms

The Centre on Wednesday reduced statutory deductions on employees’ provident fund (EPF) contributions for both formal sector employers and employees from the usual 12% each to 10%, for the May-July period. The move will benefit around 650,000 companies.

Existing social security laws make it mandatory for employees and employers to deposit 12% each, or 24% of the basic salary, plus housing allowance, as EPF deductions every month. The move will have twin benefits: a reduction in employee costs for private companies, while employees’ take-home pay will increase by 2%.

“Businesses need support to ramp up production over the next quarter. It is (also) necessary to provide more take home salary to employees and also give relief to employers in payment of provident fund dues. Therefore, statutory PF contributions of both employers and employees will be reduced to 10% for all establishments covered by EPFO for the next three months,” finance minister Nirmala Sitharaman said.

This will be applicable to all workers, or nearly 43 million employees across 650,000 establishments, who do not benefit from the PM Garib Kalyan package announced in March. The move also provides a Rs 6,750-crore liquidity support to employers and employees during the Covid-19 pandemic, she added.

However, central public sector enterprises and state PSUs will continue to pay 12% of the employer’s share, while employees contribute 10%. Besides, Sitharaman said the government will pay the EPF contribution of both the employer and the employee (12% each) for three more months for companies with a headcount of less than 100, and where 90% workers earn less than Rs 15,000 per month.