employers and employees in order to increase the take-home salary of the latter.
Here's a list of Frequently asked questions of the recent reduction in EPFO:
- What is revised rate of EPF contribution announced by the government? The Atmanirbhar package the statutory rate of EPF contribution of both employer and employee has been reduced to 10 per cent of basic wages and dearness allowances from existing rate of 12 per cent for all class of establishments covered under the EPF & MP Act, 1952.
- What is the objective of reduction in rate of contributions? Reduction in rate of EPF contributions from 12% to 10% is intended to benefit both 4.3 crore employees, members and employers of 6.5 lakhs establishments to tide over the immediate liquidity crisis to some extent during the pandemic.
- What is the period for which the reduced rate of contribution is applicable? The statutory rate of contribution will be 10% for wage months- May June and July this year.
- Who are eligible for the reduced rate of contributions? It is applicable to all class of establishments covered under the EPF & MP Act, 1952, except the establishments like central and states public sector enterprises or any other establishment owned or controlled by or under control of the central or state government. The reduced rate is also not applicable to establishments eligible for PMGKY benefits, since the entire employees EPF contributions (12% of wages) and employers’ EPF & EPS contribution (12% of wages), totalling 24% of the monthly wages is being contributed by the Central Govt.
- Are exempted establishments eligible for reduced rate of contribution? Yes. The reduced rate is applicable to exempted establishments also.
- How does the reduced rate of contributions help the employees and employer? As a result of the reduction in statutory rate of contributions from 12% to 10%, the employee shall have a higher take-home pay due to reduction in deduction from his pay on account of EPF contributions and employer shall also have his liability reduced by 2% of wages of his employees. If Rs.10000/- is monthly EPF wages, only Rs.1000/- instead of Rs.1200/- is deducted from employee’s wages and the employer pays Rs.1000/- instead of Rs.1200/- towards EPF contributions.
- I get salary under CTC model, will the reduced rate of contributions from 12% to 10% still benefit me? In cost to company (CTC) model, if Rs.10,000/- is monthly EPF wages, in CTC Model the employee gets Rs.200/- more directly from the employer as employer’s EPF/EPS contribution is reduced and Rs.200/- less is deducted from his/her wages.
- Is the 10% rate of contribution applicable to establishments which get registered with EPFO during wage months May, 2020, June 2020 and July 2020? Establishments covered during wage months of May-July, 2020 will be eligible for reduced rate for eligible remaining period from the date of coverage.
- What will be the rate of contribution for administrative charges and insurance? There is no change in the EPF administrative charges (0.5% of EPF wages subject to minimum prescribed) and EDLI contributions (0.5% of wages) both payable by employers.
- How the reduced rate of contribution will impact the amount of pension in the longer run? The EPS contributions 8.33% of wages (subject to a ceiling of Rs.15000/-) is diverted from the employer’s share of EPF contributions. The reduced rate of EPF contributions to 10% will not reduce the pension contributions or benefits.
(**Source: EPFO)
