Following the announcement made by the Finance Minister under the Atma Nirbhar Abhiyan on 18 May 2020 to reduce the rate of EPF contributions from 12% to 10% of basic wage and dearness allowance for wage months May, June and July 2020 for all class of establishments covered under the EPF & MP Act, 1952, the Ministry of Labour and Employment has, in exercise of powers conferred by first proviso to section 6 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 amended its notification number S.O. 320(E), dated 9th April, 1997, to provide for this change. The Ministry also issued a press release announcing the reduction in the rate. It has clarified that this reduced rate of 10% is not applicable to Central and State Public Sector enterprises or any other establishment owned or controlled by or under control of the Central Govt. or State Govt. These establishments shall continue to contribute 12% of basic wages and dearness allowances.

The reduced rate is also not applicable for Pradhan Mantri Garib Kalyan Yojana (PMGKY) beneficiaries, since in such cases 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.

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% of wages of his employees.

The EPFO has released a list of FAQs which clarifies, among others, that establishments which get registered with EPFO during these wage months will also be eligible for reduced rate for the remaining eligible period. The reduced rate of EPF contributions to 10% will not reduce the pension contributions or benefits. While the reduced rate of contribution is the minimum rate of contribution during period of the package, employer and employee have the option to contribute at a higher rate if they wish to.

To refer to the gazette notification of amendment, dated 18 May 2020, click here. To refer to the press brief dated 19 May 2020, click here and to refer to the FAQs, click here.