Govt mulls allowing employees to reduce PF contribution

The government is learnt to have cleared a proposal to allow employees the option to reduce their contribution to the provident fund from the existing 12 per cent of their basic salary, enabling them to take more money home.

However, the employer's contribution will remain the same, at the existing 12 per cent.

Sources said this is part of the Social Security Code, 2019 to be introduced in Parliament this week. The Cabinet has cleared the Code, the fourth in the series, last week.

The Social Security Code seeks to amalgamate provisions of eight Acts, including the Employees‘ Compensation Act, 1923, the Employees‘ State Insurance Act, 1948, the Employees‘ Provident Funds and Miscellaneous Provisions Act, 1952, the Maternity Benefit Act 1961 and the Payment of Gratuity Act 1972.

If an employee is allowed to reduce his contribution to the provident fund, sources said, it would help them take higher salary home and it would boost consumption. However, there is no clarity on how much contribution employees can reduce under this provision.

The proposal will face stiff opposition from trade unions, which had earlier expressed strong reservations about the move saying this would defeat the purpose of the social security scheme run by the Employees Provident Fund Organisation (EPFO). The trade unions said that this will end up in a decrease in savings for the employees at the time of savings.

"We have not seen the Bill but it appears that the government cannot ensure social security. They want to take away savings from the employees to boost consumption. For their failure, why should employees suffer? This will have an impact on their savings at the time of retirement," a senior trade union leader told DH.

RSS-affiliated BMS had earlier objected to altering provisions on health insurance and provident fund shaped by "none other than a great visionary" like B R Ambedkar in the draft circulated among trade unions