Finance ministry opposes wider EPFO ambit

The finance ministry has opposed a labour ministry proposal to halve the threshold limit for the organisations covered under the employees' provident fund scheme from 20 employees at present.

North Block says the enhanced safety net will increase the government burden because of the contribution it makes to the employees pension scheme, which is linked to the employee provident fund scheme, and has asked for a study to understand the financial implication.

The labour ministry has, therefore, commissioned an actuarial study of the pension scheme to assess the costs involved before pursuing its case.

"Since the government contributes to the pension account of employees covered under the EPFO Act, its expansion would have an impact on finances," labour secretary P C Chaturvedi told ET. The study would give an idea of the scale of operations and the possible financial outgo that such a move would entail, he said.

Two World Bank officials will be in New Delhi this week to supervise the study, being carried out under the PROST (Pension Reform Options Software Toolkit) model - a software-based projection tool developed by the Bank to forecast future pension spending. "We expect the report to be finalised by the end of this month and a decision taken," Chaturvedi said.

The Central Board of Trustees, the highest decision-taking body of the EPFO, had approved the proposal of halving the threshold limit last year, but the proposal can be included in the proposed amendment to the EPF Act only when the finance ministry is convinced of its feasibility.

A lower limit will bring more organisations under the EPFO Act, helping provide retirement support to a greater number of workers. EPFO estimates the number could double from the current near-5 crore subscribers in its fold.

Under the EPFO & MP (miscellaneous provisions) Act, employers have to deposit 12% of the basic wages, dearness allowance and retaining allowance (if any), on their part and an equivalent amount on behalf of employees, which is to be recovered from the employees' salary, in their EPFO account. Of the 12% contributed by the employer, as much as 8.33%, with a ceiling of 541 per month, goes to the employees' pension scheme.

The government contributes 1.16% of the basic salary of each employee to the pension scheme, which is already running a deficit of over 22,000 crore.

An EPFO official said managing a much wider scheme could be an issue. "The number of EPFO accounts will double if the threshold is halved as lakhs of small enterprises would fall under the purview of the scheme. This will create a big administration problem for the EPFO itself," the official said.

According to employers, it would increase administrative costs for small enterprises manifold and affect their competitiveness. "This will definitely affect the small-scale industry where a person single-handedly manages the entire enterprise with, say, 10-15 employees. He would find it difficult to handle the administrative burden of complying with the EPFO Act and his competitiveness will go down," said Babulal B Todi from the All India Manufacturer's Association. (Economic Times)