India Budget 2018
The decision of the govt. to contribute 12 percent of wages of new employees in employee provident fund for all sectors for the next three years will help in bringing more employees in the formal sector to some extent and increase job creation. The govt. footing at-least a part of the employers’ contribution bill should encourage more employers to adhere to compliances and increase formalization of the MSME sector.
Though, of course, a more impactful step would have been to go ahead with employee salary choice that was touched upon one of the earlier budgets in terms of giving the employees a choice in terms of whether or not to contribute the 12% employee contribution to Provident Fund as also choose to pay their 12 percent employer contribution to EPFO or NPS (National Pension Scheme). India has one of the highest mandatory payroll deductions in the world with almost 35% of a low wage employees’ salary being deducted towards PF and ESIC; which reduces their net take home salary and pushes them to the informal sector where these deductions are not applicable. Giving employees a choice on this front will encourage more employees to join formal sector where they will get all other statutory benefits like minimum wages / paid leaves etc. not given to them in the informal sector
With respect to bringing down the contributions from women employees will be brought down from 12 % to 8 %, One does hope that employers will pass on the benefit of lower PF contribution rate to the employee by way of increased take home ( as against reduced CTC. ) May be, the govt. could also have considered contributing an additional differential amount of 4 % for women employees.”
Sonal Arora is the Vice President of TeamLease Services