You may end up saving more in the months ahead with the Employees Provident Fund Organization getting ready to re-notify a new definition of compensation that will include all your allowances, amid intense lobbying against the move by industry bodies. At present, employers get away by contributing only 12% of the basic salary and dearness allowance, which is not paid by most companies, towards their share of matching PF and Employees Pension Scheme contribution.So, for several thousand employees, the basic salary remains constant, while increments are passed by way of enhanced or new allowances. In most cases, the tax liability for the employee goes up due to the salary hike and companies earn tax credits on salary-related expenses but the statutory PF contribution remains unchanged. EPFO notified the changes last year but had to withdraw the circular following protests by employers.
EPFOs proposed move may help in increasing savings Employers will now have to contribute for the PF on all allowances EPFO had to withdraw the notification last year after protests CII has written to the labor minister arguing that the plan should be deferred
Allowance Definition irks Industry
Industry is resisting the move to define compensation as all allowances, but the Employees Provident Fund Organization is expected to go ahead with the plan as a panel set up by the labor ministry to vet the proposal has endorsed it. Government officials countered the industry argument on the new definition, saying EPFO membership was mandatory only for employees earning Rs 6,500 a month. Anyone beyond that level could opt out. Although it may be difficult for several employers to give the opt-out option, reworking of the salary structure to ensure that the wage bill doesn't shoot up can be on the cards. The report is pending with the ministry but sources said the government will go ahead and notify the norms. Confederation of India Industry has dashed off a letter to labor Minister Mallikarjun Kharge arguing that the plan should be deferred.