The move is set to benefit 7.9 million workers employed in around 377,000 establishments.
The Union government will foot the Employees’ Provident Fund (EPF) bills of companies hiring up to 100 workers for the next three months and allow all the formal sector workers subscribed to the EPFO
to withdraw their three months of PF contribution during the COVID-19 pandemic.
This is part of the Centre’s Rs 1.70-trillion Pradhan Mantri Garib Kalyan (PMGK) package announced by Finance Minister Nirmala Sitharaman on Thursday to provide relief to formal sector workers to help them tide over the national lockdown.
Employers and employees equally contribute 12 per cent of wage towards a worker’s provident fund account maintained with the Employees’ Provident Fund Organisation (EPFO). The move to finance PF contributions will, however, leave behind a majority of workers who received such social security cover in the formal sector. In fact, it will cover only about 16 per cent of EPF subscribers and 1.6 per cent of the total workforce of 471 million in India.
A senior EPFO
official said the money would be in the form of reimbursements, indicating that the employers will have to continue to provide wages to its employees for the next three months for which the government will foot the PF bill. The official explained that an employer will have to show proof of payment of three months’ salary of its workers, without paying for the PF amount, to claim the benefit.
“Wage-earners below Rs 15,000 per month in businesses having less than 100 workers are at risk of losing their employment. This (move) would prevent disruption in their employment,” an official statement issued by the finance ministry said on Thursday.
The government will allocate Rs 5,000 crore towards the PF reimbursement scheme, which is set to benefit 7.9 million workers employed in around 377,000 establishments. However, the EPFO
has 563,000 establishments under its fold that employ a total of 48 million workers who make provident fund contributions on a regular basis. So, about one-third of the total establishments and around 84 per cent of the workers registered under the EPFO will not be eligible for the PMGK scheme.
“This initiative will largely benefit the MSME
(micro, small and medium enterprises) sector since the scheme is only for those establishments which employ not more than 100 employees…Clarity is required on whether for calculating the employee threshold (of Rs 15,000) the government would take into account third party employees and whether they too would benefit from this initiative,” said Richa Mohanty Rao, Partner at Cyril Amarchand Mangaldas.
But what may be a relief to all the 48 million active provident fund account holders, the government will allow a withdrawal of up to three months of their contribution during the pandemic. For workers who haven’t earned wages of up to three months, they will be able to draw 75 per cent of their PF contribution. The government will make amendments to the EPF scheme for the same. “EPF regulations will be amended to include pandemic as a reason to allow non-refundable advances of 75 per cent of the amount or three months of the wages, whichever is lower, from their accounts,” an official statement stated.
More than 80 per cent of India’s workforce is employed in the unorganised sector. After the government’s lockdown measures, there was an exodus of migrant workers who wanted to go back to their villages from cities but were stranded due to a curb on transport movement across the country. The migrant workers, mostly in the unorganised sector, will not be able to take benefit of the government’s move.
‘Credit pension by March 30’
The EPFO on Thursday directed its 135 field offices to ensure payment of pension to 6.5 million beneficiaries by March 30 amid the lockdown, according to an official statement.