New Delhi, Sep 26 — The new mandatory provident Fund (PF) wage ceiling has led to an increase in minimum statutory contributions from the employer and savings of the employees will compound faster.
The Union Cabinet recently approved raising the mandatory Employees’ Provident Fund wage ceiling from Rs 15,000 to Rs 25,000 in the previous week, marking the first revision since 2014.
The move raised the maximum compulsory monthly contribution at the standard 12 per cent rate to Rs 3,000 each from the employee and the employer, up from Rs 1,800.
The revision came as employers have to factor in the revised Rs 25,000 threshold when calculating employee and employer PF contributions, wherever the new limit applies.
Until now, the mandatory PF contribution had to be calculated only on the first Rs 15,000 of an employee's monthly salary. If one earned more than Rs 15,000, the extra part was not mandatorily covered for PF by law.
The PF contribution now stands at 12 per cent of the actual eligible salary rather than the old capped amount for those whose basic salary and DA fall in the Rs 15,000 to Rs 25,000 range.
In terms of workers' contribution, those who had already chosen to make EPF contributions on their full basic salary would remain unaffected by the revised ceiling.
Under the Employees' Pension Scheme (EPS), the employer's pension component was capped at Rs 1,250 a month based on 8.33 per cent of the Rs 15,000 wage ceiling. With the threshold moving to Rs 25,000, the monthly EPS allocation could rise to Rs 2,083.
The revised ceiling would also alter the split of the employer's 12 per cent contribution going to the EPS component. An employer’s 8.33 per cent of contribution is directed toward EPS, and hence a greater share would be allocated to the pension component.