At the thought of social security the first thing that comes in mind for most of the employees that is Provident Fund. It is a fund of the employee which contributes each month 12 per cent of their salary and hope for their old age of saving money.
Under the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (EPF Act) the social security in India is administered. The EPF Act comprises on the three pillars names as- Insurance scheme, pension scheme and Provident Fund (PF).
On an employee’s death, resignation or retirement the PF provides the lump sum payment. With monthly pension post retirement the pension scheme benefits her. To an employee the insurance scheme provides life insurance cover as the name suggests.
All these three schemes effective 1 September 2014 the Government has made radical changes.
Prior to 1 September 2014
Under these three schemes an employee with monthly salary of up to Rs. 6,500 was a member. With monthly salary exceeding the limit of Rs. 6,500 the membership was voluntary for an employee.
Into the PF the employee was deposited fully twelve per cent of the salary. As fewer than 8.83 per cent of Rs. 6,500 per month into the balance to PF and pension scheme was allocated the matching contribution made by the employer. Unless the employee and the employer had opted to contribute on a higher salary the contribution was limited to Rs. 6,500 per month.
Change from 1 September 2014
The limit of existing salary Rs. 6,500 has been increased to Rs. 15,000, thereby expanding both the quantum of contribution and the membership base.
Under the three schemes above Rs. 6,500 monthly salary but up to Rs. 15,000 will also be covered. Unlike voluntary membership, insurance scheme and PF is not available with monthly salary of above Rs. 15,000 under the pension scheme for an employee.
Both the total contribution and for calculating contribution will increase by the employer with the new salary limit of Rs. 15,000. Earlier on a salary of Rs. 6,500 the contribution was limited.
For the financial year 2014-15 at Rs. 1,000 the government has also fixed monthly pension benefit and lump sum 20 per cent increased benefits available on death of an employee.
What these changes mean:
Up to Rs. 6,500 monthly salary nothing changes. The contribution of both the employee’s and employers will be based on actual salary and will be still mandatory.
The employees will now be required to become a member of all three schemes who have not opted for voluntary membership earlier with monthly salary of up to Rs. 15,000. Whether after 1 September or enrolled prior, both the employees and the employers will be on salary of Rs. 15,000 to contribute on a higher salary unless an option is availed.
The membership is voluntary for employees earning monthly salary exceeding Rs. 15,000. On or after 1 September for new member joining the scheme the contribution is required to be made only under the PF scheme and the insurance scheme. Under the pension scheme such employees are not eligible for membership. Earlier the monthly contribution for members on salary of Rs. 6,500 earlier will now have to be contribute at least salary of Rs. 15,000.