Epf contribution of private firm employers, employees cut to 10% for three months, will increase take-home salary?

The Government has reduced statutory EPF contributions of private-sector employers and employees from the current mandated 12% to 10% for the next 3 months, as part of coronavirus relief measures. Thus, employers will save money due to a 2% decrease in their contribution to EPF.

However, going by the information currently available in the public domain, employers may or may not add these savings to the employees’ salaries. While the reduction in employee contributions will add to their take-home salaries, it is not clear whether employers should add their savings to an employee take-home pay. If employer savings are not added to the PF contribution to employee salary, this means a net loss of employees to that extent.

According to the announcement issued by the finance ministry, ” Businesses need support to increase production during the next quarter. It is necessary to provide more take-home salary to employees, and also to give relief to employers in payment of Provident Fund dues”.This appears to indicate that reduction in EPF contribution employer is not be transferred/added to the take-home salaries of the employees because if this were to happen then there would be no net ‘relief’ for the employer organizations.

However, the last word in above will only be known after a notice has been issued clarifying this step in the legal requirements.

The government reduced Employees’ Provident Fund (EPF) contribution by the employer and employee over the next three months, i.e. in June, July, and August 2020.

Employees should know that contributing to their EPF accounts can be claimed as a tax break in case their salary falls in the taxable bracket. Consequently, the decrease in employee contributions means that the corresponding tax break will also decrease to the same degree. Additionally, this decrease may mean a lowering of their EPF corpus or retirement savings.

According to experts, whether the employer should add his savings in a PF contribution to the employee’s take-home salaries will depend on whether the employer’s contribution is included in the CTC (Cost to company) agreed to in the employment contract with an employee. Here is what the experts say:

Saraswathi Kasturirangan, partner of Deloitte India says: “There is a question about whether reducing the personal finance contribution rates from 12% to 10% will benefit the employer or employee. This will depend on the terms of the employment contract. The CTC agrees with the employee and this includes the legal contribution PF, The employee will increase in his family where the difference in the employer’s contribution is likely to be paid as a taxable allowance, but if the terms of employment indicate that the company is responsible for paying the legal contribution without tying it to a predetermined amount, the cost of the employer: the employer may need to check Contracts to determine how a plant wants to process payroll for the next three months “…
Pooja Ramchandani, Shardul Amarchand Mangaldas and Co say, “The statute does not require the employer to pay the remaining 2% of the employee as salary. This payment will in no way depend on the construction of the employment agreement.”

“In the provident fund relief, the contribution for the next three months (June, July and August 2020) will be reduced from 12% to 10% for both employers and employees – providing a lot of relief to the employers who will be They have direct savings in this account and employees will receive a higher salary to take home to ask whether the employer is required to pay the 2% reduced of his employee’s contribution is a matter of the employment contract and policy interpretation if, according to the employment contract, the employer’s contribution has not been mentioned Separately, the employer is not required to pay your savings because of the low m However if the CTC is a composite number with the end of service, the employer may pay you a 2 percent discount as part of your salary. It appears that the employer is not required to pay the giving of this reduced portion because it is a legal obligation governed by law. For instance, if instead of reducing the PF rate, if the government had increased the legal contribution rate of the PF from 12% to 15%, the employer might not be able to recover the additional contribution from employee salary. “

Source: The Economics Times