Coronavirus: Centre's EPF scheme to cover only 16% of total subscribers

The Union government will pay the bills of the Employee Provident Fund (EPF) of companies that hire up to 100 workers for the next three months and will allow all formal sector workers subscribed to the EPFO ​​to withdraw their three month of FP contribution during COVID-19 pandemic.

This is part of the Rs 1.70 trillion Pradhan Mantri Garib Kalyan (PMGK) center package announced by Finance Minister Nirmala Sitharaman on Thursday to provide relief to formal workers to help them overcome the national deadlock.

Employers and employees contribute equally to 12% of wages in a workers’ provident account held with the Organization of Provident Funds (EPFO). The decision to finance FP contributions will however leave behind a majority of workers who benefited from such social security coverage in the formal sector. In fact, it will only cover around 16% of EPF subscribers and 1.6% of the total workforce of 471 million in India.

A senior official at EPFO ​​said the money would be in the form of reimbursements, indicating that employers will have to continue paying wages to employees for the next three months for which the government will pay the FP bill. The official explained that an employer will have to present proof of payment of the workers’ three-month wages, without paying the amount of the PF, to claim the allowance.

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“Employees of less than 15,000 rupees a month in companies with less than 100 workers risk losing their jobs. This (decision) would prevent disruptions in their jobs, “said an official statement from the finance ministry on Thursday.

The government will allocate 5,000 crore rupees to the FP reimbursement program, which is expected to benefit 7.9 million workers employed in around 377,000 establishments. However, EPFO ​​has 563,000 establishments under its umbrella which employ a total of 48 million workers who regularly pay provident funds. Thus, approximately one third of the total number of establishments and approximately 84 per cent of the workers registered in EPFO ​​will not be eligible for the PMGK program.

“This initiative will greatly benefit the MSME sector (micro, small and medium-sized enterprises), since the scheme only concerns establishments which do not employ more than 100 employees … It is necessary to specify whether, to calculate the threshold for employees ( of 15,000 rupees), the government would take into account third-party employees and if they too would benefit from this initiative, “said Richa Mohanty Rao, partner at Cyril Amarchand Mangaldas.

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But what could be a relief for all 48 million active pension account holders, the government will allow a withdrawal of up to three months of their contribution during the pandemic. For workers who have not earned wages for up to three months, they will be able to withdraw 75 percent of their FP contribution. The government will make changes to the EPF scheme for the same. “The rules of the EPF will be amended to include the pandemic as a reason to allow non-repayable advances of 75 percent of the amount or three months’ salary, whichever is lower,” said a statement.

More than 80% of the Indian workforce is employed in the unorganized sector. After the government’s foreclosure measures, there was an exodus of migrant workers who wanted to return to their villages from the cities but were blocked due to a hindrance to the movement of transport across the country. Migrant workers, mainly in the unorganized sector, will not be able to benefit from the government’s decision.

“Credit pension by March 30”

EPFO on Thursday ordered its 135 field offices to provide pension payments to 6.5 million beneficiaries by March 30 as part of the freeze, according to an official statement.

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