The story so far: The Union Cabinet, which met in New Delhi on Wednesday (September 16, 2026), approved a long-pending demand for raising the wage ceiling for mandatory coverage under the Employees’ Provident Fund Organisation (EPFO) to ₹25,000 a month from ₹15,000. The Union Labour Ministry had made the proposal to increase the wage ceiling. The last time the ceiling was increased was in September 2014. The employers’ organisations, largely, welcomed the announcement and sought the Union Government’s help to implement the decision as the employers’ share to the Provident Fund will increase. The trade unions described the increase as “too little and too late”.
The Government said in a release that the decision reflects the sustained wage growth, rising incomes and a continued expansion of formal employment over the years. On Thursday (September 17, 2026) the Union Labour Ministry published an official gazette notification maintaining that the decision was taken based on Clause (89) of Section 2 of the Code on Social Security.
Expanding the Social Security Net
The Union Government said the decision is expected to bring more than 51 lakh additional employees within the ambit of mandatory EPFO coverage, significantly widening social security protection for workers. Union Labour Minister Mansukh Mandaviya told reporters that about one crore subscribers could be added to the ambit of the EPFO by the decision.
He said the average salary in private establishments has increased up to ₹ 23,000 as per Government survey and increasing the ceiling is a decision based on that. Other than the access to the retirement fund savings, which has a higher interest rate compared to other small saving schemes, the new decision will also help a number of workers to access pension protection under the Employees’ Pension Scheme (EPS) and insurance protection under the Employees’ Deposit Linked Insurance Scheme (EDLI).
The Government will spend about ₹11,339 crore towards its contribution to the EPS, against the existing annual budgetary support of about ₹10,250 crore. The Government maintained that the measure is expected to give a further impetus to formalisation of employment, worker retention and long-term retirement security. “By bringing a larger number of employees automatically within the statutory social security framework, the decision strengthens the principle that formal employment should be accompanied by portable and assured social security protection,” it added.
Contributions to the Fund
The contributions of the employees and employers towards the Provident Fund and to the Employees Pension Scheme will also increase as per the new wage ceiling. Employers’ contribution to the PF will increase by ₹600 per employee and the new contribution rate for EPS will be ₹2,082.5 (8.33% of the new ceiling) per month, from the present amount of ₹1,250.
For the employees, the contribution to PF is 2% of the wages (basic and dearness allowance). According to the Code on Wages, the wage is calculated as basic+DA+retainable allowances. For employers, the contribution is 3.67% of the wages towards the PF and 8.33% (capped at ₹ 1,250 now, which will go up to ₹ 2,082.5) towards the EPS. According to the latest EPFO data, it has around 7.98 crore contributing members across about 7.68 lakh contributing establishments, while the EPS provides pension benefits to around 82 lakh pensioners and the EDLI provides insurance protection linked to EPF membership. The employer also pays 0.5% towards the EDLI and another 0.5% as administration charges.
Concerns of Unions and Employers
All India Trade Union Congress general secretary Amarjeet Kaur said the decision was too little and too late. She expressed concern over the protection of take-home pay of the employees. Her argument was that the benefit of expansion of social security should not be at the cost of reduced monthly pay packet.
“The employer’s statutory EPFO contribution must be paid over and above the employee’s cost to the company and should not be deducted from or adjusted against the employee’s agreed and existing wages,” she said in a statement and demanded that a regular and automatic mechanism for periodic revision of the EPFO wage ceiling may be established, instead of waiting for another decade or more and responding only after sustained trade-union pressure.
National chairman of the Association of Indian Entrepreneurs (AIE) K.E. Raghunathan said employers, especially MSMEs, would find it very tough to absorb the additional strain on their outflow, especially when most of them are struggling to make any profit. “This should not discourage them from formal employment and instead go for gig working arrangements. The Government of India must absorb this increase for two years in the case of MSMEs,” he said.
Legal issues
Anand Gopalan, a Chenna-based lawyer, argues that the Government should consider implementing the enhanced ceiling from April 1, 2027 rather than with immediate effect. “If the ceiling is enhanced to ₹25,000, the employee’s contribution would increase to ₹3,000 per month — an increase of ₹1,200 every month.”
“For an employee earning around ₹25,000 per month, a reduction of additional ₹1,200 in monthly take-home pay would be a significant impact on his day-to-day finances. If employees are informed in advance that the change will take effect from April 2027, they would have sufficient time to plan and arrange their finances accordingly,” he said, adding that the EPFO would need to make the necessary system and administrative changes to implement the revised ceiling.
“The objective of expanding social security coverage is certainly important. At the same time, the transition should take into account the practical financial and administrative difficulties that may be faced by both employees and employers,” he added.
Published – September 18, 2026 10:48 am IST
