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Small firms may be allowed to merge PF, pension payments

Nov 29, 2022

Synopsis
Currently, separate contributions have to be made towards Employees' Provident Fund Organisation (EPFO) and Employees' State Insurance Corporation (ESIC).

Looking to ease compliance for small enterprises, the government is considering doing away with separate contributions towards provident fund, pension and insurance and allowing a single payment towards social security of their employees.

Currently, separate contributions need to be made towards Employees' Provident Fund Organisation (EPFO) and Employees' State Insurance Corporation (ESIC).

As per the proposal, which is likely to be finalised by an expert committee, a single contribution of 10-12% of wages may be fixed towards insurance, provident fund, pension and other benefits for establishments with 10-20 workers, a government official told ET.

Preliminary discussions are being held with the stakeholders at the level of the EPFO and ESIC to understand the implications of the proposal on both employees and employers, said the official.

"An expert committee will be set up to arrive at the final unified rate... the labour ministry will notify it subsequently," said the official, who did not wish to be identified.

The Social Security Code, 2020, allows the government to formulate new schemes or tweak the existing ones through notification to allow for enhanced coverage under various social security schemes.

Currently, establishments with 10 or more workers have to contribute under the ESIC scheme for health insurance of their workers while those with 20 or more workers also contribute under the EPFO for provident fund, pension and insurance benefits.

Separately, the government is looking to reduce employee threshold to 10 from 20 now under the EPFO, a move that will bring several small-scale entities under the ambit of the EPFO. Under the ESIC, the criterion for mandatory coverage is already 10 employees and above.

The Employee State Insurance Act mandates employers to contribute 3.25% of the wages while the employees contribute 0.75% of the wages to the contributory fund, which is then used to provide insurance cover to the employees.

Under the Employees' Provident Funds and Miscellaneous Provisions (EPF & MP) Act, the employers have to contribute 12% of the basic wage of the employees. Wage floor for the coverage under the Act is set at ₹15,000.

An industry representative said on condition of anonymity that with the government moving towards universal social security, it is very important to protect the interest of small-scale industries as they could be financially hit if asked to comply with multiple schemes.

[The Economic Times]

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