From the Viewsroom

Irony behind EPF contribution cut

Anand Kalyanaraman | Updated on May 18, 2020

Employees help employers, while the Centre takes credit

The Centre, as part of the economic package to tackle the Covid-19 crisis, has reduced the employee provident fund (EPF) contribution rate to 10 per cent from 12 per cent for both employees and employers. This is applicable for three months to all establishments under the Employees’ Provident Fund Organisation (EPFO), except government employees and those covered under the Pradhan Mantri Garib Kalyan Package.

The cut in the EPF contribution rate will mean a liquidity support of ₹6,750 crore to employers and employees over three months. This amount has been included as part of the ₹20-lakh crore economic package. Employees’ take-home pay will increase, while employers will have to pay less in EPF dues, and get relief on their cash flows.

 

But the cut in employers’ contribution to the EPF also means that employees’ cost-to-company (CTC) falls to that extent. In effect, employees will be taking a pay cut for three months. Also, since the EPF is a part of the retirement corpus, employees’ nest eggs will take a hit. The compounding effect of lower contributions for three months over several years can mean big sums. At a time when many employers across several sectors have already cut employee salaries, this cut in the EPF contribution adds to it. There is no clarity on how, when and whether employers will have to make up the loss to employees.

 

In effect, the Centre is asking employees to fund their employers. How ironical! If at all employees want to help their employers, it should be voluntary. Also, employees should not be forced to cut their own EPF contribution; many may want to continue with their usual 12 per cent. The bigger irony is that the liquidity provision from this measure is being claimed by the Centre as part of its economic package — when, in fact, it is not funding any part of it. Talk about taking credit where it is not due.

The writer is Deputy Editor with BusinessLine

Published on May 18, 2020

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