This proposal by the Centre may increase the take-home salary of employees thereby giving a boost to consumer spending! Reports say that the central government is mulling a proposal to reduce social security contribution of employees so that their take-home salary increase. In effect Employees Provident Fund (EPF) contribution will be slashed, giving employees more money in hand via salaries, however, there is a catch too! Employees savings will take a major hit as a result.
Citing a government official, an Economic Times report said that a Labour Ministry committee working on the contributory ceiling by the government towards universal social security for all workers, may recommend a contribution which is at least 2 per cent lower than the current ceiling of 24 per cent.
Notably, an employee contributes 12 per cent of his basic salary to the EPF kitty. While 3.67 per cent of his/her basic salary is contributed by the employer in the EPF kitty and 8.33 per cent in the EPS or employee’s pension scheme.
The ET report said the EPF contribution may fall 10 per cent from the current 12 per cent for both employees and employers, yielding higher take-home salary for employees. For establishments having less than 20 employees, the contribution limit currently is 10 per cent, and the same could be applicable for all organisations now.
Once the committee comes out with its recommendations, the labour ministry will hold consultation with stakeholders after that the proposal would be incorporated in the social security code, said the ET report, citing the official.
The government reportedly aims to increase those covered under the social security scheme 5-fold to 50 crore from the current base of about 10 crore people. “We are enhancing the scale of coverage by five-fold,” the official told ET, adding “Hence, we think that going forward the contribution by and for each worker eligible for a social security cover will come down, benefitting both employee and the employer.”
In case of private sector employees, the report said that their employers’ contribution to their EPF and EPS is already factored in their cost-to-company, therefore, a reduction in employee and employer’s contribution is expected to be available to employees on some other head. This would boost the salary of employees.