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However, based on information currently available in the public domain, employers may or may not add this savings to employees’ wages. While the reduction in the employee contribution will add to their take-home wages, it is unclear whether employers will have to add their savings to the employees’ wages. If employers ‘savings on the PF contribution are not added to employees’ wages, it would mean a net loss to the employee up to that point.
According to the announcement by the finance ministry: “Companies need support to increase production during the next quarter. It is necessary to provide more net salary to employees and also give relief to employers in paying the contributions of the Provident Fund.” This seems to indicate that the reduction in the EPF contribution by the employer is not intended to be transferred / added to the wages of the employees to take home because if this were to happen then there would be no net ‘relief’ for the organizations of employers.
However, the last word on the above will be known only once the notice clarifying this step in legal terms is issued.
The government has cut the contribution of the Employee Provident Fund (EPF) for both the employer and the employee during the next three months (June, July and August 2020).
Employees need to know that the contribution to their EPF accounts can be claimed as a tax exemption in the event that their salary falls within the taxable range. Therefore, the reduction in the employee contribution will mean that the tax exemption will also be reduced to the same extent. Also, this cut would mean a reduction in your EPF corpus or retirement savings.
According to the experts, whether the employer is required to add their savings in the PF contribution to the employees’ wages will depend on whether the employer’s contribution was included in the CTC (Cost for the company) agreed in the employment contract with the employee. This is what the experts say:
Saraswathi Kasturirangan, partner, Deloitte India, says: “There is a question about whether the reduction in PF contribution rates from 12% to 10% will benefit the employer or the employee. This would depend on the terms of the employment contract. Where agree to the CTC with the employee and this includes the legal PF contribution, the employee will have a higher home profit since the differential in the employer contribution is likely to be paid as a taxable allowance. However, if the terms of employment indicate that the company is responsible for paying the legal contribution without being tied to a predetermined amount, the cost of the employer is likely to be reduced The employer may have to look at the contracts to determine how they would like to process the payroll for the next three months “.
Pooja Ramchandani, partner, Shardul Amarchand Mangaldas and Co, says: “The statute does not oblige the employer to pay the remaining 2% to the employee as salary. Such payment will not depend at all on the construction of the employment agreement.”
Dr. Suresh Surana, Founder, RSM India says: “In relief from the provident fund, the contribution for the next 3 months (June, July and August 2020) would be reduced from 12% to 10% for both employers and for employees, providing much relief to employers who will have direct savings in this account and employees will have a higher salary to take home. The question of whether the employer is required to pay the reduced two percent of their contribution to an employee is a matter of employment contract and policy interpretation If, according to the employment contract, the employer’s contribution is not mentioned separately, the employer is not required to pay their savings because of the employer’s reduced contribution. However, in the event that the CTC is a compound number with the separation, your employer may pay you the reduced two percent as part of your salary. It appears that the employer is not required to ap grab this reduced part as it is a legal obligation governed by law. For example, if instead of a reduction in the PF rate, if the government had increased the legal contribution rate for PF from 12% to 15%, the employer may not be able to recover the additional contribution from employees’ wages. ”
Puneet Gupta, Director, EY India says: “The part of the employee’s contribution is deducted from the employee’s salary after taxes. Therefore, reducing the part of the employee’s contribution from 12% to 10% will increase the salary monthly take home in the hands of the employee. If an employee wishes to contribute more than 10% of the monthly payment to the Provident Fund, the same can be done as a contribution from the Voluntary Provident Fund. The employer contribution to the Provident Fund is deposited in addition to the monthly salary paid to the employee. In some cases, the employer contribution to the Provident Fund is part of the CTC agreed with the employee. In other cases, the employer contribution is a benefit offered to employees in addition to the agreed CTC / salary. When the employer contribution is part of the CTC agreed with the employee, the balance of the employer contribution (2% of the monthly payment) can be paid to the employees two as a cash allowance. This will further increase the monthly salary to take home in the hands of the employees. r, the cash allowance will be taxable in the hands of the employee. When the employer contribution is an additional benefit above the CTC agreed with the employee, the employer contribution of the balance (2% of the monthly payment) can lead to cost savings for the employer and losses for the employee. In addition, it remains to be seen whether such a reduction in the contribution rate from 12% to 10% is an optional or mandatory change for employers and employees. You may have to wait for official notification to understand the implications for employers and employees in different scenarios. ”
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