EPFO battles 12 year old wage ceiling to get fresh subscriptions

Last Updated: Tue, Jul 23, 2013 09:46 hrs
INTERVIEW - EPFO proposes 8.5 pct interest for FY10

The failure of the Finance Ministry to approve an increase in minimum wage ceiling for subscription into the Employees Provident Fund scheme is keeping out fresh subscriptions from the social security fund. It is also putting the Government on the wrong side of the Minimum Wages Act, as the wage ceiling is depriving workers of social protection.

The last ceiling remains Rs 6,500 since June 2001 though the minimum wages have crossed that in most states.

This has meant that the EPFO is not getting new workers enrolled at the rate it should have been getting. Most companies can now claim that the minimum wage paid by them exceeds Rs 6,500.

The Labour Ministry and EPFO have been pleading with the Finance Ministry to increase this ceiling to Rs 15,000 to enable fresh flow of memberships since 2006. The last time a proposal to this effect went to the ministry from the Central Board of Trustees of the EPFO was in 2011. While wage ceiling is generally raised every five years, this time the Finance Ministry has not considered it even after 12 years. When it was last raised in June 2001 EPFO enrolments saw a 44% jump the following year.

All India Trade Union Congress state secretary and member of the Central Board of Trustees of the EPFO D L Sachdeva said that CBT had approved a proposal to raise wage ceiling two years ago, but the Finance Ministry is yet to respond to the proposal.

Struggling with low rates of enrolments, EPFO has however managed to get a jump through inspection drives and vigilance activities in 2009 and last year.

The main reason why the Finance Ministry is shying away from raising the ceiling is that it will double the subsidy, EPFO sources said.

The Government now pays 1.16% of every Rs 6,500 that comes in. This goes to the Employees Pension Scheme which is part of Provident Fund. The EPFO has been arguing that the benefits of the scheme go directly to the bank accounts of members and there is almost zero pilferage. Hence the money invested in it is never wasted.

The Government spends Rs 1,800 crore as the subsidy it pays in the Employees Pension Scheme.

There is a feeling of frustration in the EPFO that while the Government does not mind splurging on food, oil and other subsidies and on schemes like NREGA where there is high leakage, it is dragging its feet on social protection in an almost zero pilferage scheme.

Another hurdle that comes in the way of subscriptions to EPFO is that companies with less than 20 workers are barred.

The EPFO has also asked for reduction of the entry limit to companies with 10 workers and above.

In this case, the Finance Ministry has questioned the capacity of the EPFO to carry the additional burden this may imply, EPFO sources said. The ministry was told that even if  half the eligible units are covered it would be better than nothing, the sources said.
Merchant community would be hit by this move, admit EPFO officials who wonder if the Finance Ministry is denying social protection to the poor to help the industry. Finance Ministry may argue that it is trying to make industry competitive. But you cant deny social protection and violate the Minimum Wages Act to do that, said an EPFO official.

The ongoing negotiations between the Government’s Group of Ministers with trade unions on a set of demands is also addressing these issues.

The wage ceiling may finally be raised as the Government is keen to address the labour issues, a Labour Ministry official said.

EPF enrolment growth prior to  2001-2002 when the wage ceiling was increased to Rs 6,500 from Rs 5,000
1999-2000 6.1% 231.19 lakh
2000-2001 7.1% 245.37 lakh
2001-2002 4.2% 263.01 lakh
2002-2003 4.4% 274.18 lakh

The slide in enrolment after 2002:
2003-2004 1.5% 394.98 lakh
2004-2005 2.5% 400.92 lakh
2005-2006 4.4% 411.10 lakh
2006-2007 3.3% 444.04 lakh
2007-2008 1.1% 449.19 lakh
2008-2009 4.7% 470.72 lakh
2009-2010 24.9% 587.96 lakh
2010-2011 4.7% 615.89 lakh
2011-2012 38.8% 855.40 lakh

(The data shows unusual jumps in enrolment growth rate in 2009 and 2011, which EPFO attributes to inspection drives undertaken to beat the downslide in enrolments. Data from EPFO annual reports)

EPFO's minimum wage ceiling: Rs 6,500

Minimum wages in various states:

Rajasthan 7,080
Gujarat 6,300
Bengal 7,530
Kerela 14,000
Haryana 6,600
Delhi 9,840
Maharashtra 7,500
Uttar Pradesh 7,260
Tamil Nadu 8,100

(Based on data of State Labour departments for 2013 reported  by Paycheck.in)

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