EPF pension: Additional 1.16 percent contribution to be levied from employer

NEW DELHI: The Union Ministry of Labour has decided to levy 1.16% of the employer's contribution as an additional contribution on salary above Rs 15,000 by those who opt for the higher EPF pension option.

The judgment of November 4, 2022 in the Supreme Court had suggested that this amount should not be collected from the PF contribution of the employees and instead alternative ways including increasing the contribution of the employer should be decided through the amendment of the law. Six months were allotted for this. The Supreme Court also held that the deduction of 1.16% of salary above Rs 15,000 from employees is against the EPF Act, 1952.

The central government issued the notification shortly before 12 midnight on May 3, when the six-month term was to be completed on May 4.

Transferring 1.16 percent of the employer's contribution to the pension scheme will reduce the amount due in the employee's PF account and the interest on it. The loss is to the employees. There is no additional liability on the part of the employer or the Central Government.

The order will have retrospective effect from September 1, 2014, when the new pension scheme came into force.

As per the new notification, 8.33 percent of salary up to Rs 15,000 plus 1.16 percent of salary above that and 9.49 percent will go to the pension fund as the employer's contribution. This is the amount to go to the employee's PF account. Employees also lose out on the fact that the amount in the PF account and its interest will decrease and the pension will not increase as it is diverted through the employer's contribution.

According to the new Social Security Code, 1.16% of the employer's contribution is deducted from the employer's contribution, the Union Ministry of Labour explained. The central government has also informed that the Supreme Court verdict that legal action is required has been implemented.

The deadline for granting the higher pension option has been extended till June 28. So far around twelve lakh people have given the option online.