Take-home salary to take a hit after changes in PF Act

Take-home salary to take a hit after changes in PF Act

Ministry for deduction of provident fund on house rent, gratuity, other allowances along with basic wage.

Your take-home salary is set to see a sharp cut with a labour ministry proposal to include house rent, gratuity, traveling and other allowances as part of the “contributing wages” on which provident fund would be deducted.

The proposal is part of the final amendments of the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, that has also sought to increase PF deductions to 12 per cent of the contributing wages from the current rate of 10 per cent.

These amendments have already been cleared by the EPFO’s Central Board of Trustees and are expected to be taken to the Union Cabinet by next month and tabled in Parliament in the Monsoon Session.

The proposal is a significant change from the current practice, wherein PF is deducted only on the basic wages. Under the new proposal, even contributions to the related Employees’ State Insurance Corporation will be part of the “contributing wages” on which PF will be deducted.

The proposal comes due to the different wage structures followed by establishments and High Court rulings. “To bring uniformity and transparency in the calculation of contribution payable by the employers, the definition of the contributing wages is proposed to be included. Specific details of allowances included or excluded for the purpose of PF contribution have been mentioned to avoid any ambiguity,” said the labour ministry.

It has also called for a significant expansion of the coverage of the scheme to include establishments with up to 10 workers, all types of establishments as well as all kinds of employees including those on contract and apprentices.

“The definition of employee has been broadened to include all types of workers including contractor workers and apprentices,” said the ministry, adding it would include those who “receive their wages directly or indirectly from the employer”.

Similarly, the term “establishment” would be expanded to include “any organisation, institution, corporation, local body, company, co-operative society, trusts, self help groups or any other legal entity employing one or more person.”

However, a special provision has been included for reducing the rate of contribution for establishments employing less than twenty person.

Following up on the Budget announcement, the draft amendments have also proposed to give a one time chance to members of the EPFO to switch to the National Pension System.

Doing away with the prescribed retirement age of 58 years for the EPFO scheme, the amendments, which were finalised by the labour ministry after meetings with trade unions and employer representatives, have said that it will now be decided by the Central government.

But providing relief to firms facing hard times, the draft amendments have sought to empower the government reduce or waive contribution in case of establishment or class of establishments.

Source : The New Indian Express.