COST GOES UP (INCREASE IN THE COST)

Employee Pension Scheme

A Critical View

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Resource Inputs Pvt Ltd – Hyderabad – SriCity-Visakhapatnam E mail : svrr@hrchambers.com
COST GOES UP (INCREASE IN THE COST)

EPS – CONTRIBUTION ON HIGHER WAGES

APEX COURT JUDGEMET

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Resource Inputs Pvt Ltd – Hyderabad – SriCity-Visakhapatnam E mail : svrr@hrchambers.com
Date of Retirement Contribution on Option exercised or Accepted by EPFO Eligibility for pension on
higher wages not higher wage
Before 1.9.2014 Not paid Never opted - Not eligible
.
Before 1.9.2014 Paid Never opted - Not eligible
Before 1.9.2014 Paid Exercised option Rejected / no response Eligible
before 1.9.2014
Retired between Paid Never opted Option can be given Eligible
1.9.2014 and 4.11.2022 before 4.3.2023
Retired between Paid Exercised option Rejected / no response Eligible
1.9.2014 and 4.11.2022 between 1.9.2014 and
4.11.2022
Retired between Not Paid Never opted - Not eligible
1.9.2014 and 4.11.2022

HR Chambers Outsourcing Pvt Ltd & S V Ramachandra Rao 9849948654

Resource Inputs Pvt Ltd – Hyderabad – SriCity-Visakhapatnam E mail : svrr@hrchambers.com
Date of Joining Contribution on Option exercised or not EPFO Eligibility for pension on
. higher wages higher wage

Joined before 1.9.2014 Paid Never Opted Option can be given Eligible
before 4.3.2023

Joined before 1.9.2014 Paid Exercised option between Rejected / No response Eligible
1.9.2014 and 4.11.2022

Joined before 1.9.2014 Not paid Option question does not - Not eligible
arise

Joined on or after Not eligible for - - Not eligible

1.9.2014 with PF wage EPS itself
above Rs. 15000/-

HR Chambers Outsourcing Pvt Ltd & S V Ramachandra Rao 9849948654

Resource Inputs Pvt Ltd – Hyderabad – SriCity-Visakhapatnam E mail : svrr@hrchambers.com
 Present System

• EPS contributions restricted to Rs. 15,000/- Wage

• From out of the employer contribution 8.33%

• Central Government contribution restricted to Rs. 15000/- @ 1.16%

HR Chambers Outsourcing Pvt Ltd & S V Ramachandra Rao 9849948654

Resource Inputs Pvt Ltd – Hyderabad – SriCity-Visakhapatnam E mail : svrr@hrchambers.com
 Higher Penson Contribution Method

• EPS contributions on the total PF Wage.

• From out of the total employer contribution 8.33% will be credited to pension fund.

• Central Government contribution is restricted to 1.16% of Rs. 15000/- (present statutory limit)

• From the PF contributions of the employee 1.16% of higher contribution amount towards
pension fund ( that is actual PF Wage less Rs.15,000) will be taken towards pension fund.
(As the Central Government is not contributing the 1.16% on higher pension contributions)

HR Chambers Outsourcing Pvt Ltd & S V Ramachandra Rao 9849948654

Resource Inputs Pvt Ltd – Hyderabad – SriCity-Visakhapatnam E mail : svrr@hrchambers.com
 Example

• Employee opts towards EPS contribution on Rs. 1,15,000/- (actual wage)

• The EPS contribution pattern will be as under:

• From employer contribution 8.33% of Rs. 1,15,000/-.

• From employee PF contribution 1.16% on Rs. 1,00,000/-

• Central Government contribution 1.16% on Rs.15,000/-

HR Chambers Outsourcing Pvt Ltd & S V Ramachandra Rao 9849948654

Resource Inputs Pvt Ltd – Hyderabad – SriCity-Visakhapatnam E mail : svrr@hrchambers.com
• The Apex Court struck down the additional contribution of 1.16% from employee PF
contribution. In the very same judgement, this portion of the judgement is suspended for 6
months to enable to EPFO to make adjustment in the scheme.

• In view of the same, it is most likely that the EPFO will modify the scheme to enable
deduction of 1.16% from employee PF contribution.

HR Chambers Outsourcing Pvt Ltd & S V Ramachandra Rao 9849948654

Resource Inputs Pvt Ltd – Hyderabad – SriCity-Visakhapatnam E mail : svrr@hrchambers.com
• Formula before 1.9.2014 when the PF wage statutory limit is Rs. 6500/-

• Penson = Pensionable Salary (average of preceding 12 months) * Service Period) / 70

Formula changed from 1.9.2014

Pension = Pensionable Salary (average of preceding 60 months)*Service Period / 70

Automatically the amount of pension has come down due to change in the formula

Is there any assurance that the formula will not be changed? NO

HR Chambers Outsourcing Pvt Ltd & S V Ramachandra Rao 9849948654

Resource Inputs Pvt Ltd – Hyderabad – SriCity-Visakhapatnam E mail : svrr@hrchambers.com
• Whether the EPS has the system of ‘return of capital? NO

Then what is the system?

• Widow / Widower will get the reduced pension.

What is the reduced pension?

• 50% of the monthly pension received by the employee is the reduced pension.

HR Chambers Outsourcing Pvt Ltd & S V Ramachandra Rao 9849948654

Resource Inputs Pvt Ltd – Hyderabad – SriCity-Visakhapatnam E mail : svrr@hrchambers.com
 EPS Return of Capital

 Option for the Return of Capital cannot be given if the Pension Start Date is on or
after 26-09-2008 as this facility has been abolished vide Notification Number GSR
688 (E) dated 26-09-2008.
 Commutation of Pension

 Option for the commutation of Pension cannot be given if the Pension Start Date is on
or after 26-09-2008 as this facility has been abolished vide Notification Number GSR
688 (E) dated 26-09-2008.
 Who Can Make Changes To The EPS

 Employees Provident Fund and M P Act is enacted by the parliament.

 The Act empowered the implementing authority to frame schemes
 Hence, EPFO by way of notifications can amend / modify / change the schemes.

 It could be seen changes made by EPFO in the past

 Return of Capital withdrawn
 Commutation of pension withdrawn
 Pension formula changed to make to less beneficial to the employee
 Individual Risk Factor
• Higher Pension concept is based on the EMPLOYER CONTRIBUTION OVER AND
ABOVE STATUTORY LIMIT.

• If an employee opts now in view of higher contribution by the present employer and when the
employee chooses to join another employer and the new employer is not willing to
contribution on actual salary and restricts to the statutory limit, he will loose both ways as the
present pension calculation is based on last drawn 60 wages.

HR Chambers Outsourcing Pvt Ltd & S V Ramachandra Rao 9849948654

Resource Inputs Pvt Ltd – Hyderabad – SriCity-Visakhapatnam E mail : svrr@hrchambers.com
 Path Forward

The decision should be taken by the individual employee and not by the employer.
Employer should not encourage or motivate the employee to opt for higher contribution towards
pension.
This is like investment decision by the individual.

HR Chambers Outsourcing Pvt Ltd & S V Ramachandra Rao 9849948654

Resource Inputs Pvt Ltd – Hyderabad – SriCity-Visakhapatnam E mail : svrr@hrchambers.com
• We provide customized, creative and effective strategic HR solutions. Following are some
of the services that we render to our clients as their associate,
• Outsourcing Solutions
• Manpower Outsourcing
• Payroll Processing

• Labour Laws and Employee Relations

• Compliance & Audit
• Strategic Support for productive employee relations
• Placement and Executive Search
• Human Resource Consulting
HR Chambers Outsourcing Pvt Ltd & S V Ramachandra Rao 9849948654
Resource Inputs Pvt Ltd – Hyderabad – SriCity-Visakhapatnam E mail : svrr@hrchambers.com
 S.V. Ramachandra Rao, Promoter & Managing Director

• Backed by 25 years of experience in senior positions in field of HR, legal and general management
fields, in highly reputed industries and after carving a unique image as Employee Relations and
Labour Law expert, In the year 2000 he promoted Resource Inputs Pvt Ltd and HR Chambers
Outsourcing Pvt Ltd to provide total HR services.

• He has authored a number of articles on HR and addressed numerous conferences on Human

Resource Management. He is also the Founder Secretary of National HRD Network Hyderabad
Chapter and Vice-Chairman of Employers’ Federation of Southern India – AP& TS Branch,

• CII Telangana State Council Member, Member Regional Provident Fund Organisation.

HR Chambers Outsourcing Pvt Ltd & S V Ramachandra Rao 9849948654

Resource Inputs Pvt Ltd – Hyderabad – SriCity-Visakhapatnam E mail : svrr@hrchambers.com
HR Chambers Outsourcing Pvt Ltd & S V Ramachandra Rao 9849948654
Resource Inputs Pvt Ltd – Hyderabad – SriCity-Visakhapatnam E mail : svrr@hrchambers.com
HR Chambers Outsourcing Pvt Ltd & S V Ramachandra Rao 9849948654
Resource Inputs Pvt Ltd – Hyderabad – SriCity-Visakhapatnam E mail : svrr@hrchambers.com
 THANK YOU

HR Chambers Outsourcing Pvt Ltd & S V Ramachandra Rao 9849948654

Resource Inputs Pvt Ltd – Hyderabad – SriCity-Visakhapatnam E mail : svrr@hrchambers.com