Cabinet rejects labour ministry’s proposal on EPFO threshold

Date : 5.10.2016

Cabinet rejects labour ministry’s proposal on EPFO threshold

By Yogima Sharma, ET Bureau | Updated: 04 Oct, 2016, 1158 hrs IST

 Under the EPF & MP Act, 1952, the employee contributes 12% every month towards EPF and a matching contribution is made by the employer.

NEW DELHI: The labour ministry may restore the original threshold for any enterprise to be covered under Employees Provident Fund Organisation (EPFO) to 20 workers against 10 proposed by it following a directive from theUnion Cabinet saying it would discourage formal employment. 

The rollback of the proposed amendment, which had the potential to bring 50 lakh workers under under the social security net, would, however, hit labour ministry’s on-going push to widen the cover by bringing more and more workers under the EPFO fold. 

"We are considering to reverse the threshold to 20 workers after the Cabinet rejected the proposal in view that lowering the threshold would put immense financial burden on the small enterprises," a senior labour ministry official told ET on condition of anonymity. 

According to the official, a revised Cabinet note would be moved again after consultation with stakeholders, including employers, employees and trade unions. At present, it is mandatory under the Employees' Provident Fund and Miscellaneous Provisions Act for firms having 20 or more workers to subscribe to EFO social security schemes. Labour and employment minister Bandaru Dattatreyahad said in Lok Sabha in August that the plan is to amend the law so that firms with 10 employees can also be brought under the ambit of EPFO to ensure more workers come under the umbrella of soci-EPal security.

Under the EPF & MP Act, 1952, the employee contributes 12% every month towards EPF and a matching contribution is made by the employer. 

However, of the 12% contribution by the employer, 8.33% goes into the employee pension scheme, 0.5% to the employees’ deposit linked insurance scheme while the rest goes to the provident fund account of each worker. "It is a welcome move because lowering the threshold was very anti-ease of doing business and would have prompted more informalisation as small companies would have preferred to stay small to avoid this hassle," Rituparna Chakraborty of the Indian Staffing Federation said. 

According to the federation, in the case of lowering of the threshold, small enterprises, which are struggling to establish themselves, would have to bear not just the cost of provident fund but also the cost of administering such a huge responsibility, something they would not want to do at that stage.