/Reduced EPF contribution: 16 questions answered by EPFO

Reduced EPF contribution: 16 questions answered by EPFO

The Employees’ Provident Fund Organisation (EPFO), via its official Twitter handle released a set of FAQs related to the recently announced reduction of EPF contribution from 12 per cent to 10 per cent for both employers and employees.

Finance Minister Nirmala Sitharaman announced this measure as part of the Atmanirbhar Bharat Package as a means to provide relief to employers and also increase take-home pay of employees.

Here are the 16 questions answered by the EPFO related to reduction in EPF contribution for the months of May, June and July, 2020.

  1. What is the revised rate of EPF contribution announced by the Central govt. under Atmanirbhar Bharat Package?
    Under this package, the statutory rate of EPF contribution of both employer and employee has been reduced to 10 percent of basic wages and dearness allowances from existing rate of 12 percent for all class of establishments covered under the EPF & MP Act, 1952.
  2. What is the objective of reduction in rate of contributions?
    Reduction in rate of EPF contributions from 12% to 10% of basic wages and Dearness allowances is intended to benefit both 4.3 crore employees/members and employers of 6.5 lakh establishments to tide over the immediate liquidity crisis to some extent during pandemic situation.
  3. Whether any notification has been issued under the EPF & MP Act, 1952 for reducing the rate of contributions? If so, how can I access the notification?
    The reduction in statutory rate of contribution from 12% to 10% for wage months May 2020, June 2020 and July 2020 has been notified vide SO 1513(E) dated 18.0.2020 published in Gazette of India. The notification is available under the TAB-COVID-19 on the homepage of EPFO website.
  4. What is the period for which reduced rate of contribution is applicable?
    The statutory rate of contribution will be 10% for wage months – May 2020, June 2020 and July 2020.
  5. Who are eligible for the reduced rate of contributions?
    It is applicable to all class of establishments covered under the EPF & MP Act, 1952 except the establishments like Central and State Public sector enterprises or any other establishments owned or controlled of the Central govt or State govt.The reduced rate is also not applicable to establishments eligible for PMGKY benefits, since the entire employees EPF contributions (12% of wages) and employers’ EPF & EPS contribution (12% of wages), totalling 24% of the monthly wages is being contributed by the Central govt.
  6. Are exempted establishments eligible for reduced rate of contribution?
    Yes. The reduced rate is applicable to exempted establishments also.
  7. How does the reduced rate of contributions help the employees and employer?
    As a result of reduction in statutory rate of contributions from 12% to 10%, the employee shall have a higher take-home pay due to reduction in deduction from his pay on account of EPF contributions and employer shall also have his liability reduced by 2% wages of his employees. If Rs 10,000/- is monthly EPF wages, only Rs 1000/- instead of Rs 1,200/- is deducted from employee’s wages and employer pays Rs 1,000/- instead of Rs 1,200/- towards EPF contributions.
  8. I get a salary under Cost to Company (CTC) model, will the reduced rate of contributions from 12% to 10% still benefit me?
    In Cost to Company (CTC) model, if Rs 10,000 is monthly EPF wages in CTC Model, the employee gets Rs 200 more directly from employer as employer’s EPF/EPS contribution is reduced and Rs 200 less is deducted from his/her wages.
  9. Is the 10% rate of contribution applicable to establishments which get registered with EPFO during wage months May 2020, June 2020 and July 2020?
    Yes. Establishments covered during wage months of May-July 2020 will be eligible for reduced rate for eligible remaining period from date of coverage.
  10. What will be the rate of contribution for administrative charges and insurance?
    There is no change in the EPF administrative charges (0.5% of EPF wages subject to minimum prescribed) and EDLI contributions (0.5% of wages) both payable by employers.
  11. How is benefit availed? One has to pay at full rate and claim reimbursement later or direct payment at reduced rate can be made.
    Establishment has to remit dues at reduced rate through the Electronic-Challan cum Return (ECR) itself.
  12. Can the employer or employee pay at higher rate or the combination rate of 10% is mandatory?
    The reduced rate of contribution is minimum rate of contribution during period of the package. The employer, employee or both can contribute at higher rate also.
  13. How the reduced rate of contribution will impact amount of pension in longer run?
    The EPS contribution 8.33% of wages (Subject to ceiling of 15,000) is diverted from employer’s share of EPF contributions. The reduced rate of EPF contributions to 10% will not reduce the pension contributions or benefits.
  14. My establishments will not be able to remit dues timely during the scheme period. Is it still eligible for reduced rate of contribution?
    Yes, the rate of contribution is 10% for the three wage months- May 2020, June 2020 and July 2020 irrespective of the date of payment.
  15. Is the option to contribute at reduced rate available to establishments availing PMRPY benefits?
    Yes, the establishment availing PMRPY benefits can remit contribution at reduced rate.
  16. The rate of contribution for my establishment is 10% as it is engaged in manufacturing of gaur gum. Will the rate of contribution be further reduced for my establishment?
    The establishments, which were already entitled to reduced rate of contribution (10%) through the SO 320 (E) dated 09.04.1997 are not eligible for any further reduction in rate of contribution.

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