New bill seeks to trim employee share in PF, take over CSR funds

The bill also proposes to establish a social security fund using the corpus available from collections under corporate social responsibility.

The reduction in statutory employee contribution will help increase the take-home salary of employees, thereby helping to boost consumption, according to the government, say reports.

The move, however, will lower the retirement saving corpus of workers in the long run, making them solely dependent on the NPS or other saving modes like insurance.

The change in rules, which will be part of the Social Security Code Bill 2019, to be tabled in Parliament this week, may allow employees to pay less than the current 12 per cent statutory contribution. In contrast the employer contribution will remain at 12 per cent.

Currently, both employees and employers of a formal sector establishment contribute 12 per cent each of the basic salary every month. 

The rules, however, may vary depending on the sectors and government may limit this to certain sector like MSME, textile, and start-up firms, reports cited government officials familiar with the development.

"The employee share of EPF contribution may vary between 9 per cent and 12 per cent, depending on sectors. The flexibility will help workers to take home a better salary," an Economic Times report cited one official as saying.

The move, however, will limit annual flows to the Employees Provident Fund Organisation (EPFO), even as it may not give any big boost to consumption.

The problem with falling consumption, however, is people’s indecision to invest in long-term assets in a changing environment, especially with constant changes in government policies, say market watchers.