Reduced EPF Contribution Rate for May – July 2020

Under the ”Self-Reliant India” package announced by the Hon’ble Finance Minister (‘FM’) on 13 May 2020, the rate of Employees Provident Fund – EPF contribution for both employer and employee will be reduced to 10% from existing 12%

The objective of the said amendment is to provide more liquidity in the hands of both employer and employee.

In order to notify the reduced rates announced, on 18 May 2020, the Ministry of Labour and Employment has issued the Official Gazette.

Eligibility Criteria for Reduced EPF Contribution Rate

The said reduced EPF Contribution rate is applicable to all establishments except listed below In respect of salaries payable for the months of May, June and July 2020

Central Public Sector Enterprises, State Public Sector Enterprises and other establishments owned by or under the control of the Central Government or the State Government;

Establishments eligible for relief under the Pradhan Mantri Garib Kalyan Yojana (PMGKY) i.e. establishments with up to 100 employees wherein 90% or more of such employees earning monthly wages less than INR 15,000. Under PMGKY both employer’s and employee’s share of PF contributions is payable by the Central Government for the period Mar 2020-Aug 2020.

Key Observations

• This change is mandatory for  both employer and employee.
• The reduced PF contributions will be applicable for International Workers as well.
• If any employee wishes to contribute in excess of 10% of monthly pay towards PF, the same can be done as voluntary PF contribution.
• Employer need to decide whether the savings on account of the reduced employer’s share of PF contributions (by 2% of eligible pay) shall be paid to the employees or not.  If the employer’s contribution is treated as part of CTC in the employment contract between the employer and employee, employer shall pass on the benefit of employer’s reduced EPF contribution rate to employee (i.e. 4% benefit).
• The reduced rate also apply to establishments covered maintaining private PF trusts, which are recognized under section 17 of the EPF Act.  However, the corresponding PF Trust Rules for such exempted establishments may need to be analysed to determine as to whether a position to continue PF contributions @ 12% of monthly pay can be taken.

Gazette Notification for EPF Reduced Contribution

This step will definitely help the service industry and large enterprises to gain some liquidity out of the reduced rate of EPF contributions