Proposed Provident Fund Rules Will Mean Even Lower Take-Home Pay

22/05/2015 1:51 PM IST | Updated 15/07/2016 8:25 AM IST
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A money changer prepares Indonesian rupiah bills for a customer in Jakarta on March 13, 2015. According to reports the rupiah continued its decline with the rates at 13,193 rupiah to a US dollar on March 13, with the Indonesian currency reaching a 16 year low. AFP PHOTO / ROMEO GACAD (Photo credit should read ROMEO GACAD/AFP/Getty Images)

The union labour ministry has proposed changes to the provident fund law that will reduce your take-home salary, but make sure you have more funds when you retire.

According to latest amendments in the Employees' Provident Fund and Miscellaneous Provisions Act, 1952, allowances such as house rent, gratuity, and travel will be made part of wages. The ministry also wants to raise the PF contribution to 12 percent from the current 10 percent.

Currently the PF is deducted only on basic wages, which does not include allowances. So you will lose some of your existing take-home pay but that will go towards increasing your retirement corpus.

The amendments will soon be discussed by the union cabinet, and then tabled in the monsoon session of Parliament.

Labour minister Bandaru Dattatreya had held a meeting with employees unions and representatives in April. According to the proposal discussed in the meeting, the ministry has defined “contributing wages” — on which PF will be deducted — as “all remunerations paid or payable to an employee, if the terms of the contract of employment, express or implied, were fulfilled and includes any payment to an employee in respect of any period of authorized leave, lock-out, strike which is not illegal.”

The amendments will also widen the coverage of the act to any establishment that employs 10 workers from the current 20. The definition of employee will now include all workers including apprentices and those on contract. Everyone "who receive their wages directly or indirectly from the employer" will be deemed as an employee. This means workers will also get less pay, but will be treated as employees by their employer.

For an analysis of all that is wrong with the way Indian laws treat its workers in terms of PF and other benefits, see this piece.

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