What does Reduced EPF Contribution mean for Employees and How can it Benefit Them?

GOVT.NEWS News Update Provident Fund

In a big relief, the government announced reduction of Employees’ Provident Fund (EPF) contribution for both employers and employees to 10 percent of basic wages for next three months – June, July and August. This move, government said, will increase cash in the hands of employees. This measure was a part of the Rs 20 lakh crore economic package announced by the government.

Finance experts say that the cut in EPF contribution rate will increase the take-home salary of an employee. But there’s a rider, which should be seen.

EPF acts as a saving tool for employees. Currently, the employees contribute 12 percent of their salaries, and an equal amount is contributed by the employers in an EPF account.

The reduction of 10 percent ideally means employee’s portion of 2 percent will be paid out as salary to all employees in the next three months. Hence, employees will get slightly higher payout.

However, a very clear perspective is still awaited on what will be done with the employers’ contribution of 2 percent. If that is also added to the savings of employees’ it’s a gain and if not that brings a net loss for the employee.

It’s also noteworthy to see that the announcement is meant only for private sector employers and employees. Public sector employees and employers will still continue to pay 12 percent.

The decision is however expected to increase cost-savings for startups at a time when the entire country is looming under economic mayhem in view of the coronavirus outbreak. The government has been announcing several relief measures in order to arrest the economic fallout.

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