The reduction in contribution to employees’ provident fund (EPF) is aimed at increased take-home salaries of women employees.
Currently an employee contributes 12% of his or her basic salary as EPF contribution and a matching contribution is made by the employer.
New Delhi: Finance minister Arun Jaitley on Thursday had good news for both new employees and employers covered by the Employees Provident Fund Organization (EPFO).
He announced a reduction in the contribution that new women employees make to the EPFO, from 12% to 8%, to promote women’s participation in the labour force as well as increase their take-home pay.
In his budget speech, he also said that the government will now “contribute 12% of the wages of new employees to the EPFO for all sectors for the next three years”.
This means companies across sectors will not have to pay the employer’s share of provident fund contribution when they hire new employees.
Currently an employee contributes 12% of his or her basic salary as the statutory monthly contribution to the employees provident fund and a matching contribution is made by the employer.
To be sure, for the past two years, the apparel and textiles sector has been getting the 12% employer’s share of employees provident fund contribution from the government while other sectors have been getting 8.33%.
While the move is intended to reduce the payroll cost of employers as the government will foot their provident fund burden for new employees, it may also help create fresh job openings across sectors.
On reducing EPFO contribution of new women employees, Jaitley said the aim is “to incentivize employment of more women in the formal sector and to enable higher take-home wages”.
“I propose to make amendments in the Employees Provident Fund (EPF) and Miscellaneous Provisions Act, 1952 to reduce women employees’ contribution to 8% for the first three years of their employment against the existing rate of 12% or 10% with no change in employers’ contribution,” Jaitley said.
The budget announcement will mean that while employers’ contribution of 12% will continue, new women employees will be required to pay just 8% of their salary as EPFO contribution.
Women’s labour force participation in India is at 24% as against 40% globally. Economists and industry veterans argue that improving female labour participation will help boost the economy.
For increased formal sector job creation one of the drivers could be reduction in the gap between on-paper salary and take-home salary of an employee, said Rituparna Chakraborty, president, Indian Staffing Federation, a confederation of staffing companies.
She said by reducing the EPFO deduction burden and incentivizing EPFO contributions for new employees, the finance minister seems to have addressed a key demand from both job seekers and job providers.
Employment creation is an issue for the government ahead of the 2019 general election.
While some 12 million people are entering the job market every year, the growth in jobs is believed to be much lower.
