The Labour and Employment Ministry's change in the Employees' Provident Fund (EPF) contribution rate has sparked discussion. The government has made all contributions above the monthly wage ceiling of Rs 15,000, voluntary under the new Employees' Provident Funds Scheme 2026. This means a mandatory EPF contribution Rs 1,800 by the employee monthly.
Any additional contributions on basic wages over Rs 15,000 will be optional for both parties. The new rule, along with the Labour Code, has a direct impact on salaries.
What Changes Due To New EPF Rule And Labour Code
Under the Labour Code, wages include basic pay, dearness allowance, and retaining allowance.
“If the allowances (except gratuity and retrenchment compensation) exceeds 50% of all remuneration, the excess amount shall be added back to wages,” the government has stated in the Labour Codes.
This does not mean every employer has to peg basic pay at exactly 50% of the total compensation. Instead, firms may need to restructure payrolls so that they can comply with the wage definition given in the Labour Codes.
The EPF Scheme, 2026, has linked the mandatory provident fund contribution to the statutory wage ceiling of Rs 15,000 per month, capping it at 12% of the amount or Rs 1,800. The wage ceiling was decided in 2014.
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Do The EPF Scheme And Labour Code Contradict Each Other?
No. The provisions deal with different aspects of an employee's salary. The EPF rules determine the minimum mandatory PF contribution while the Labour Codes decide how wages are defined and structured.
Any changes in take-home salary will depend on how a company plans and structures PF contributions. If the employer has chosen the fixed Rs 1,800 ceiling as the PF contribution, the take-home salary may not see a lot of change even after salary restructuring. If the employer chooses actual basic payments for PF contributions, a higher basic wage may increase PF deductions and lower monthly in-hand salaries.
Here's an example. If an employee earns Rs 2,00,000 with no other deductions and their basic pay is Rs 1,00,000 after the Labour Code, their PF can be either the mandatory ceiling or voluntary contribution.
Under the ceiling, their take-home salary will be Rs 2,00,000- Rs 1,800, which is Rs 1,98,000.
If the PF contribution is calculated on the basis of actual basic payments, then the amount would be 12% of basic pay (Rs 1,00,000) or Rs 12,000. The take-home salary will be Rs 2,00,000 - Rs 12,000, which rounds up to Rs 1,88,000.
For employees, there is a trade-off between a larger EPF corpus for post-retirement use and a higher take-home salary for current expenses.
But unless both the employee and employer choose to go in a voluntary contribution above the ceiling, the compulsory PF amount does not automatically increase for higher salary payments.
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