A win-win proposition

While a big pay package or CTC sounds good, a reduced take-home salary after many deductions discourages morale. A higher take-home salary boosts employees' confidence, and if it can be achieved by benefiting employers as well, it will result in double gains. Reviewing some age-old provisions may make a difference.

In India, social security is facilitated through schemes such as the Provident Fund (PF) and Employees’ State Insurance (ESI) funds. These schemes are mandated by Indian laws and regulated by The Employees’ Provident Funds & Miscellaneous Provisions Act, 1952, and the Employees’ State Insurance Act, 1948, respectively.

The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 requires both the employer and the employee to contribute 12 per cent of the basic salary and certain allowances to the provident fund. The scheme under the Act also allows capping up to Rs 15,000, if desired. This fund acts as a savings plan that employees can rely on post-retirement, upon quitting, and for other needs as stipulated in the provisions. On the other hand, the Employees’ State Insurance Act (ESI), 1948 provides medical benefits to employees with a wage limit of Rs 21,000 during sickness, injury, etc.

Interestingly, when an employee's salary exceeds Rs 21,000, the contribution in the subsequent period stops with respect to ESI. This is because when the salary is beyond Rs 21,000, it is expected that the employee can look after such needs on their own. However, as per the scheme under the PF Act, once a member joins, they remain a member until they leave the company, irrespective of salary hikes. Even when such an employee joins a new entity, they cease to be a member only when there is a gap of two months and they have withdrawn the amount of PF deposited, even if their salary is beyond Rs 15,000 in the new company. This means that if any of these conditions are missing, a PF member is mandatorily required to contribute, and the employer is also obligated to deposit its share.

Thus, at times, even those employees whose salary ranges to several lakhs are subject to PF provisions, as the Act mandates. Ironically, a new employee with a salary above Rs 15,000 is not mandatorily required to be made a PF member unless voluntarily desired. It is absurd that while a new employee has the choice to be a PF member or not if their salary is above Rs 15,000, an old employee is mandated to remain a member unless the aforementioned conditions exist.

The time has come to review these provisions so that employees can take home more while employers can also make savings. Maybe the legislature should review whether there is actually a statutory need to cover employees whose salary is beyond Rs 15,000 or any other amount that can be modified according to current needs under the PF provisions. Amendments could include an existing rider that if an employee wants PF voluntarily, it is permissible.

The social security schemes were promulgated as socialistic legislation to benefit needy workers for their social security at the time of quitting, retirement, etc. It was never intended to reduce take-home salary for those employees who are capable of making their own financial plans nor to unnecessarily burden employers.

The PF Act includes schemes such as the PF Scheme, EDLI scheme, and pension scheme, among others. In cases of employees such as casual, daily wagers, and contract labourers, such provisions should remain and be implemented in full spirit. In fact, there is also a need to consider making provisions for the self-employed. Provident Fund actually has some serious issues, resolving which can save many litigation costs. There should also be time limits fixed within which demands can be raised against employers by the department. The Labour Codes 2020, yet to be implemented, do take care of such issues.

Provisions need to be modified in line with current economic needs. More simplified social security schemes would undoubtedly make it more lucrative for overseas investments as well as expat employees. After all, any employee would want more take-home pay, and any management would want more savings.

The writer is a practising Advocate in Supreme Court and High Court of Delhi. Views expressed are personal