The Government of India, as part of the Atmanirbhar Bharat package for pandemic relief, has reduced the statutory rate of PF contribution from 12% to 10% for the wage months of May, June and July 2020. Please see the gazette notification (S.O. 1513(E)) issued by the Ministry of Labour and Employment here.
Note: A reading of the gazette notification alone is inadequate to get an understanding how the PF rate rate has been reduced to 10% for the months of May, June and July 2020. You need to read the gazette notification along with an earlier order (S.O. 320(E), dated 9th April, 1997) referred to in the gazette notification and Section 6 of the EPF Act, in order to get a comprehensive understanding of the legal basis of the rate reduction.
Your organization can opt for one of the 3 options in this regard for May, June, July 2020 payroll.
Option 1: Continue with the existing rate of contribution (@ 12%) for both employee and employer contributions.
If you chooses this option, there will be no change in the PF contribution and deduction for the wage months of May, June and July 2020. The PF department has allowed employers to retain the current rate of 12% for May, July and July 2020. Please see question number 12 in the FAQ document published by the PF department here.
Option 2: Implement the reduced rate of 10% for both employee and employer contributions.
- Impact on employer contribution: The reduction amount, pertaining to 2% of employer PF contribution, can be paid to the employees by way of a taxable salary component in order to maintain the cost-to-company amount.
- Impact on employee contribution: There will be a reduction in PF deduction in the salary of employees. If any of your employees has opted for a voluntary higher deduction, you can retain the same.
Option 3: Apply different rates for employer and employee contribution.
As explained in Q 12 of the FAQ document, the option of higher rate of contribution, say, 12%, can be chosen only for employee contribution or employer contribution. For example, the employee contribution can be reduced to 10% while the employer contribution can be retained at 12% and vice versa.
The PF department has stated that :
- Certain organizations, such as those eligible for the PMGKY benefit, are excluded from this order.
- Organizations need to remit the PF dues at reduced rate (if they opt for the same) through the monthly PF-ECR.
- There is no change in the EPF administrative charges and EDLI contributions.
- The reduced rate of EPF contributions to 10% will not reduce the pension contributions or benefits.