Big EPFO change: Wage ceiling hiked to Rs 25,000; 51 lakh more workers to enter mandatory coverage

The Union Cabinet on Wednesday approved a proposal to raise the wage ceiling for mandatory coverage under the Employees’ Provident Fund Organisation (EPFO) from Rs 15,000 to Rs 25,000 per month, widening the retirement and social security net for salaried workers.

The decision, announced by Union Information and Broadcasting Minister Ashwini Vaishnaw, is expected to bring more than 51 lakh additional employees under mandatory EPFO coverage.

Under the revised ceiling, employees earning wages up to Rs 25,000 a month will fall within the mandatory coverage framework.

Workers earning above the new threshold can continue to make contributions voluntarily, according to the details announced following the Cabinet decision.

The increase marks the first revision of the EPFO wage ceiling in 12 years. The limit was last raised in September 2014, when it was increased from Rs 6,500 to Rs 15,000 a month.

The latest move effectively expands the pool of workers who can be brought within the formal social security system.

EPFO-linked benefits include provident fund savings, pension coverage under the Employees’ Pension Scheme and insurance protection through the Employees’ Deposit Linked Insurance Scheme.

The expansion is therefore expected to extend multiple layers of social security to workers who were previously above the mandatory coverage threshold.

The government has estimated an annual expenditure of around Rs 11,339 crore on account of the revised ceiling.

This compares with the existing annual budgetary support of approximately Rs 10,250 crore.

Over five years, the estimated financial implication of the decision is around Rs 56,696 crore, according to the government.

The move comes against the backdrop of efforts to expand formal employment and widen social security coverage.

By raising the mandatory coverage threshold, the government is seeking to bring workers earning between Rs 15,000 and Rs 25,000 a month into the EPFO framework.

The change also comes as the government continues to expand employment-linked social security measures.

The Centre's Employment Linked Incentive scheme, for instance, has been designed to encourage formal job creation and increase EPFO-linked employment.

The new ceiling will be particularly relevant for employees whose wages had previously placed them outside mandatory EPFO coverage solely because they earned more than Rs 15,000 a month.

With the threshold now moving to Rs 25,000, that gap will be narrowed.

The decision is also significant because the Rs 15,000 threshold had remained unchanged for more than a decade. The revision brings the mandatory coverage limit in line with the higher wage levels seen across the formal workforce since the previous increase.

The government estimates that more than 51 lakh workers will be added to mandatory EPFO coverage as a result of the change.

The broader coverage is expected to increase participation in provident fund savings while also extending access to pension and insurance-linked social security benefits.

The financial impact of the measure will be closely linked to the pace at which eligible workers are brought under the revised framework.

For the government, the estimated annual outgo of Rs 11,339 crore represents an increase over the existing budgetary support.

The Cabinet's decision therefore marks a substantial expansion of the wage band covered by mandatory EPFO participation, with the government projecting millions of additional workers entering the social security system.