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Sunday, November 8, 2009

Employee Provident Fund Organisation proposes salary cap rise to Rs 10,000

The Employee Provident Fund Organisation (EPFO) has sent a proposal to the labour ministry to increase the salary limit for paying employee provident fund (EPF) to Rs 10,000 from the current Rs 6,500.

It has also proposed covering companies with a minimum of 10 employees under the Employee Provident Fund and Miscellaneous Provisions Act (EPF & MP Act), 1952, against the present norm of a minimum of 20 employees.

A source close to the development said: “The current norms in EPF & MP Act, 1952, results in millions of workers being left out of the EPFO regulations. Therefore, we have proposed to the government to raise the salary cap and to lower the limit on the worker count in an establishment to be covered by EPFO.”

WIDER UMBRELLA

* Current norms in EPF & MP Act, 1952, results in millions of workers being left out of the EPFO regulations

* The organised labour sector comprises 300 million workers, of which only 40 million are covered under EPFO regulations

* If the proposal is approved by Parliament, the EPFO is likely to cover 50% of the organised labour market

* At present, employers have to contribute a minimum of 12 per cent towards EPF on less than or up to Rs 6,500 (basic + dearness allowance)

* This move will especially help contractual workers. They are the biggest concerns because they are often illiterate

The organised labour sector comprises 300 million workers, of which only 40 million are covered under EPFO regulations. Sources said if the proposal were approved by Parliament, the EPFO was likely to cover 150 million workers in the organised sector, which would be 50 per cent of the organised labour market. The proposal is awaiting the ministry’s approval.

Manish Sabharwal, co-founder and chairman, TeamLease Services, however, said a chunk of these 300 million workers are state- and central-government employees. “The EPFO should first concentrate on covering the private and public sectors in totality before expanding its base any further.” He felt that matters would become more complicated for the organisation if the base were expanded.

At present, employers have to contribute a minimum of 12 per cent towards EPF on less than or up to Rs 6,500 (basic + dearness allowance).

This move will especially help contractual workers. Many smaller firms, which work as contractors to bigger firms, are not obliged to honour the EPF Act. “But in the case of contractual workers, their supervisor pays a lump sum without segregation, due to which their basic-plus-DA earning exceeds the limit of Rs 6,500, so that they need not be registered under the Act,” said the source.

The source added that contractual workers were the biggest concerns because they were often illiterate. Since their employers paid them more than the government prescribed cap, the EPFO could not penalise them. If the government approved the EPFO proposals, these people stood to benefit.

The change in the limit, if approved, could be an important move because of rising salaries over the years. But smaller industries, like the beedi industry, which pay a lower rate of 10 per cent, because of lower turnover, would see a higher outgo if this regulation is implemented.