InvestorQ : How a reduction in statutory PF contribution will impact the employees?
simran Kaur made post

How a reduction in statutory PF contribution will impact the employees?

Answer
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nishi Shah answered.
5 months ago


As per the previous rule, the contribution to the statutory Provident fund was 12% each (employee & employer) for all establishments covered by EPFO. However, due to this pandemic situation government decided to make it 10% each, just to bring liquidity in the economy. The workers who are not eligible for the 24% EPF support which comes under the PM Garib Kalyan package shall be entitled to this scheme. While this step by the government will improve liquidity it will also have an impact on the employees. The scheme has been imposed by the government for 3 months until any further updates. The scheme will impact employees and employer in the following ways:

-The employees will get 2% more cash in hand which could help in solving the liquidity crunch as their spending power will increase. Even though individually it’s not much but collectively it can be a major benefit for the employees and the economy.

-This scheme will create a lot of hassle for the employers as in the original contract employer have agreed for 12% contribution and now due to this new provision, the original contract needs to be amended. On the contrary, the benefit to the employees shall be reduced which could disinterest the employees.

-Provident fund is basically a saving scheme for the employees in which both employer and employee contribute. Therefore, any reduction in such contribution would mean lesser savings for the employees. In the present case it shall be reduced by 4% (2% each employer and employee).

-The scheme shall also provide benefits to the employer as the overall employee cost shall be reduced.