The Employees’ Provident Fund Organisation (EPFO) may increase the wage ceiling from Rs 15,000 to Rs 21,000 after considering the proposal for a considerable amount of time, the Economic Times reported. At the inception of the EPF scheme in November 1952, the wage limit was Rs 300, but it has been revised many times since. The last revision was on September 1, 2014, when it rose to Rs 15,000, up from Rs 6,500 modified on June 1, 2001.

A higher wage limit will allow higher contributions to the employees’ pension scheme (EPS). According to EPFO rules, organisations with over 20 employees must provide the EPF facility. Under the scheme, the employee and the employer contribute 12 per cent each of the employee’s basic salary towards EPF. However, of the employer’s contribution, 8.33 per cent goes to EPS and 3.67 per cent to EPF.

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How a higher wage ceiling benefits employees?  

In 2023, EPFO issued guidelines regarding higher pensions in compliance with the Supreme Court’s November 4, 2022, order. As per the updated rules, a person who was an EPS member on or before September 1, 2014, and has remained a member since could apply for a higher pension. Those who applied for a higher pension but retired from service before September 1, 2014, and their applications were rejected are also eligible for a higher pension, the last date being July 11, 2023. While these guidelines for higher pension contributions were optional and only for eligible applicants, the proposal for a higher wage ceiling will affect all.

As per the EPFO rules, EPS contributions are limited to Rs 15,000 of the employees’ basic salary, although they may have a higher basic wage. For example, if an employee’s basic salary is Rs 20,000, the EPF contribution will be Rs 2,400. The EPS will be calculated based on the wage limit of Rs 15,000. So, 8.33 per cent of Rs 15,000 or Rs 1,250 will go to EPS, and Rs 1,150 will go to EPF.

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If the wage limit increases to Rs 21,000, the EPS contributions will also increase. In that case, the 12 per cent of Rs 21,000 will be Rs 2,520. With the employer’s contribution of Rs 2,520, the total contribution will be Rs 5,040, and the employer’s EPS contribution will increase from Rs 1,250 (on Rs 15,000) to Rs 1,749 (on Rs 21,000). The wage ceiling hike will lead to higher contributions towards pension, improving social security.