As a part of the 'Atmanirbhar Bharat Package', the Government of India has announced a reduction in provident fund contribution rates for a period of 3 months. With a view to provide relief to employers and increase the take-home salary for employees, both employer and employee contribution rates have been reduced from 12% to 10% for the months of May, June, and July of 2020.
In terms of its powers under Section 6 of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (the "EPF Act"), the Ministry of Labour and Employment has, through a notification1, added the following entry to Schedule II of the EPF Act:
"(v) Any establishment, other than Central Public Sector Enterprises and State Public Sector Enterprises and other establishments owned by, or under the control of the Central Government or the State Government, as the case may be, in respect of wages payable by it for the months of May, June and July 2020.
Provided that this clause shall not be applicable to the establishments eligible for relief under the Pradhan Mantri Garib Kalyan Yojana guidelines issued by the Employees' Provident Fund Organization vide its Office Memorandum No.C-1/Misc./2020-21/Vol.II/Pt. dated 9th April, 2020".
The above implies that private establishments registered under the EPF Act (save those covered under the Pradhan Mantri Garib Kalyan Yojana) will not, for a period of 3 months, be subject to the first proviso to Section 6 of the EPF Act, which prescribes the contribution rate of 12%. Accordingly, for the months of May, June, and July of 2020, these establishments can undertake both employer and employee contributions at the rate of 10%.
In light of the above notification and other list of frequently asked questions issued by the employees' provident fund ("EPF") department2, establishments can comply with the following considerations while processing salaries for May – July, 2020 and filing the electronic challan cum returns (ECRs) with the EPF department:
2.1. Employee's EPF contribution has been reduced to 10% of basic wages, while employer's EPF contribution has been reduced to 1.67%;
2.2. Employers' contribution to the pension scheme remains the same at 8.33% of basic wages, and EDLI contributions also remains the same at 0.5%; 2.3. The above benefit can be availed by exempted establishments as well; and 2.4. If they choose to, the establishments can also undertake contributions at a higher amount.
3. INDUSLAW VIEW
The intent of this amendment is undoubtedly to assist around 4.3 crore employees and the employers of 6.5 lakhs establishments to address liquidity concerns arising out of the COVID – 19 crisis. With revenues being severely impacted, the reduction in contribution rates will help employers with personnel costs, and employees can also take home a higher salary for the next few months. While this is certainly welcome, critics will argue that it is only a stop gap arrangement and may not bolster the Indian economy significantly, in the long term. That said, in our view, given that the crisis is still an ongoing one and depending on the events that unfold in the next few months, it is perhaps likely that more reform measures, particularly in the labour and employment sphere, will be introduced in order to help employers and their employees navigate through such unprecedented times.
1 Notification bearing reference S.O. 1513(E) dated March 18, 2020
Originally published 22 May 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.