EPFO wage ceiling likely to be raised to Rs 25,000; here’s how it may impact employees and employers

The Central government is reportedly considering a proposal to raise the wage ceiling for mandatory Employees’ Provident Fund (EPF) contributions to ₹25,000 per month, from the existing limit of Rs 15,000. If approved, the revised ceiling is expected to come into effect from April 1, following approval by the Central Board of Trustees of the Employees’ Provident Fund Organisation (EPFO).

What Is Likely to Change

At present, EPF coverage is compulsory only for employees drawing a monthly salary of up to ₹15,000. This wage limit has remained unchanged since 2014. As a result, many low- and mid-skilled workers whose salaries have increased over the years have moved out of the mandatory EPF bracket. An increase in the ceiling to ₹25,000 would bring a significantly larger section of the workforce under compulsory EPF coverage.

Impact on Employees

With the higher wage threshold, employees earning between ₹15,000 and ₹25,000 per month will be required to contribute to EPF mandatorily. Since EPF contributions are calculated as a fixed percentage of wages, monthly deductions from salaries will increase. While this may reduce take-home pay, it is expected to strengthen long-term retirement savings for employees.

However employers will also face higher financial outgo, as they are required to make matching EPF contributions for their employees. This could lead to an increase in overall payroll costs, especially for labour-intensive sectors and small and medium enterprises.

Changes in PF-Linked Benefits

If the proposal is implemented, all EPFO-linked benefits, including provident fund accumulations, pension contributions under the Employees’ Pension Scheme (EPS) and insurance coverage under the Employees’ Deposit Linked Insurance (EDLI) scheme, will be calculated based on the revised wage ceiling.

A final decision on the proposal is awaited, with stakeholders closely watching its potential implications for employment costs and social security coverage.