JSA Prism | Employment Law | September 2026

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Enhancement in wage ceiling under the Employees Provident Fund regime: Impact on employers and employees

The Ministry of Labour and Employment, vide a gazette notification dated September 17, 2026, enhanced the wage ceiling for mandatory employees’ provident fund (“EPF”) coverage from INR 15,000 (Indian Rupees fifteen thousand) to INR 25,000 (Indian Rupees twenty-five thousand) per month. This marks a significant increase, as the wage ceiling was last revised in September 2014.

This change would extend the benefits of the EPF regime, including the benefits under the associated Employees’ Provident Fund Scheme, 2026 (“EPF Scheme”), pension scheme and the insurance scheme to a significantly larger pool of employees across establishments.

Key features

Under the previous statutory framework, all employees whose monthly ‘wages’ were upto INR 15,000 (Indian Rupees fifteen thousand) were mandatorily covered under the EPF fund, pension fund, and the associated insurance coverage.

With the increase of the statutory wage ceiling to INR 25,000 (Indian Rupees twenty-five thousand) per month, all employees whose monthly wages are within the enhanced wage ceiling of INR 25,000 (Indian Rupees twenty-five thousand) will now fall within the mandatory EPF coverage.

Likewise, any employee who becomes a member of the employees’ provident fund organisation (“EPFO”), continues to remain a member until the employee withdraws the entire amount standing to their credit, or otherwise as prescribed by law, regardless of any subsequent increase in their wages irrespective of the wage ceiling.

Meaning of ‘wages’ post implementation of Labour Codes

‘Wages’ under the Labour Codes essentially comprises of the basic salary, dearness allowance, and retaining allowance (if any), and expressly excludes items such as house rent allowance, conveyance allowance, overtime, commission, bonus, gratuity, retrenchment compensation, and the employer’s own contribution to any pension or provident fund. The Labour Codes do not count such excluded components as ‘wages’, if the aggregate of the excluded components under the Labour Codes does not exceed 50% of the employee’s total remuneration. Any amount by which the excluded components exceed this 50% threshold is deemed to be part of ‘wages’.

Therefore, the employer will need to determine the actual monthly ‘wages’ drawn by the employees, in the manner provided under the Social Security Code, 2020 (“SS Code”). The EPF coverage and the contribution mechanics would accordingly vary for different employees.

Contribution mechanics

As per the SS Code read with the EPF Scheme, the minimum statutory rate of EPF contribution is set at 12% of the monthly ‘wages’ of an employee, for both employer’s contribution and employees’ contribution. However, the EPF contributions may be capped at 12% of the prevailing wage ceiling.

Therefore, going forward, EPF contributions will have to be computed in the following manner:

• Monthly wages up to INR 25,000 (Indian Rupees twenty-five thousand): Where an employee’s monthly ‘wages’ are less than or equal to INR 25,000 (Indian Rupees twenty-five thousand), EPF contribution will need to be computed at 12% of the actual ‘wages’, without any cap.
• Monthly wages exceeding INR 25,000 (Indian Rupees twenty-five thousand): Where an employee’s monthly ‘wages’ exceed INR 25,000 (Indian Rupees twenty-five thousand), EPF contributions may be computed either on the employee’s actual ‘wages’ or may be capped at 12% of the enhanced wage ceiling of INR 25,000 (Indian Rupees twenty-five thousand) (i.e., at INR 3,000 (Indian Rupees three thousand)). Previously, the EPF contributions could be capped at 12% of INR 15,000 (Indian Rupees fifteen thousand), i.e., at INR 1,800 (Indian Rupees one thousand eight hundred) per month. Therefore, the enhanced wage ceiling would now essentially increase the employer’s and employee’s monthly EPF contributions by INR 1,200 (Indian Rupees one thousand two hundred), for employees whose monthly wages exceed INR 25,000 (Indian Rupees twenty-five thousand).

The 3 (three) scenarios below illustrate the practical impact of the revised wage ceiling across different salary structures:

Scenario A: Monthly wages remaining within Indian Rupees fifteen thousand

• Salary structure:
  • Basic Salary: INR 12,000 (Indian Rupees twelve thousand).
  • Dearness Allowance (“DA”): INR 3,000 (Indian Rupees three thousand).
  • Conveyance Allowance: INR 1,500 (Indian Rupees one thousand five hundred).
• Monthly wages (Basic Salary + DA): INR 15,000 (Indian Rupees fifteen thousand) as conveyance allowance is excluded.
• Impact: As per the previous INR 15,000 (Indian Rupees fifteen thousand) wage ceiling, EPF contribution was INR 1,800 (Indian Rupees one thousand eight hundred) each (that is, 12% of INR 15,000 (Indian Rupees fifteen thousand)). Post-enhancement in the wage ceiling, because monthly ‘wages’ continue to remain at INR 15,000 (Indian Rupees fifteen thousand) (that is, below the new INR 25,000 (Indian Rupees twenty-five thousand) ceiling), the statutory EPF contribution should be computed on actual ‘wages’ and hence, would remain unchanged at INR 1,800 (Indian Rupees one thousand eight hundred) per month from each side.

Scenario B: Monthly wages set at Indian Rupees twenty-five thousand

• Salary structure:
  • Basic salary: INR 20,000 (Indian Rupees twenty thousand).
  • DA: INR 5,000 (Indian Rupees five thousand).
  • Conveyance allowance: INR 5,000 (Indian Rupees five thousand).
• Wages (Basic salary + DA): INR 25,000 (Indian Rupees twenty-five thousand) as conveyance allowance is excluded.
• Impact: As per the previous wage ceiling, EPF contribution was capped at INR 1,800 (Indian Rupees one thousand eight hundred) each. Given the enhanced ceiling, employer and employee contributions will need to be enhanced. Although they may be capped at INR 3,000 (Indian Rupees three thousand) (that is, 12% of INR 25,000 (Indian Rupees twenty-five thousand)) each per month, leading to an increase of INR 1,200 (Indian Rupees one thousand two hundred) per side. Therefore, the monthly take home pay for the employee would reduce by INR 1,200 (Indian Rupees one thousand two hundred) subject to how the compensation is structured and other tax implications.

Note: Employees whose monthly wages exceed INR 25,000 (Indian Rupees twenty-five thousand) would also have the same impact if the monthly EPF contributions for such employees were being capped at 12% of the previous wage ceiling.

Scenario C: Wages between Indian Rupees fifteen thousand and Indian Rupees twenty-five thousand

• Salary structure:
  • Basic salary: INR 18,000 (Indian Rupees eighteen thousand).
  • DA: INR 5,000 (Indian Rupees five thousand).
  • Conveyance allowance: INR 5,000 (Indian Rupees five thousand).
• Wages (Basic Salary + DA): INR 23,000 (Indian Rupees twenty-three thousand) as conveyance allowance is excluded.
• Impact: Earlier, the employee EPF deduction was capped at INR 1,800 (Indian Rupees one thousand eight hundred) (12% (twelve percent) of INR 15,000 (Indian Rupees fifteen thousand)). Under the revised ceiling, the employee EPF deduction rises to INR 2,760 (Indian Rupees two thousand seven hundred and sixty) per month (that is, 12% (twelve percent) of INR 23,000 (Indian Rupees twenty-three thousand)). In this scenario, the employee’s monthly take-home pay would be reduced by INR 960 (Indian Rupees nine hundred and sixty).

Note: The above illustrations demonstrate the operation of the revised wage ceiling across different salary structures. The actual contribution liability and impact on take-home salary will depend on the employee’s specific compensation structure and the amount constituting ‘wages’ under the SS Code, subject to tax considerations. Employers must therefore assess the position for each employee individually.

The enhancement in the wage ceiling limit should however not impact the take-home pay of those employees who have already voluntarily been making EPF contributions on their actual higher ‘wages’, over and above the prevailing wage ceiling, as their EPF contributions may continue to be computed in such manner.

Debunking the ‘Indian Rupees one thousand two hundred’ misconception

What is important to note is that there is no universal or automatic leap from INR 1,800 (Indian Rupees one thousand eight hundred) to INR 3,000 (Indian Rupees three thousand) per month for every employee. Employers are not required to mechanically step up contributions to INR 3,000 (Indian Rupees three thousand) across the board.

The exact financial impact would depend on factors such as:

• the actual monthly ‘wages’ of the employee, and where it stands against the enhanced wage ceiling limit;
• employee’s compensation structure; and
• whether the EPF contributions have been capped or uncapped previously.

Accordingly, the employers should assess the above factors and immediately start making the required adjustments in their practices relating to EPF contributions.

Employee benefits under the revised framework

In its press release dated September 17, 2026, the EPFO also stated the following:

• the enhanced contributions would earn interest (stated to be 8.25% for the current financial year), thus increasing long-term retirement savings; and
• employees may withdraw up to 75% of their EPF accumulations online based on their requirements and that claims of up to INR 5,00,000 (Indian Rupees five lakh) are proposed to be auto-settled within 3 (three) days.

Accordingly, employees impacted by the enhanced wage ceiling limit would generally be entitled to benefits such as an increased EPF corpus and pension benefits. While certain employees may see some reduction in take-home pay, the money goes into their own EPF accounts as retirement savings, earns competitive interest, and is complemented by the employers contribution.

Key considerations and next steps for employers

• Conduct a comprehensive audit of existing compensation structures in light of the definition of ‘wages’ under the SS Code and accordingly identify employees for whom the computations will need to be revised.
• Proactively communicate this change to all affected employees, to ensure that the negative impact on their take-home pay is understood in its proper context and as an enhancement of long-term benefits rather than a unilateral pay cut by the employer.
• Under the SS Code and the EPF framework, an employer cannot recover its share of EPF contributions from employees, whether through deductions or otherwise. Consequently, employers must bear any increase in their contributory liability and cannot offset it by reducing employees’ ‘wages’.

Conclusion

With the country fast approaching the first anniversary since the commencement of the Labour Codes, several operational and procedural aspects have been evolving. One of the most deliberated changes by the industry, employers and employees alike, was the possible enhancement of the EPF wage ceiling limit and its likely impact on the extension of coverage.

Post the notification of the Labour Codes, the industry felt a similar impact with respect to Employees’ State Insurance (“ESI”), where a large number of employees who were previously exempt from the ESI framework became eligible because their new monthly ‘wages’ fell below INR 21,000 (Indian Rupees twenty-one thousand).

Now, with the increase in the statutory wage ceiling from INR 15,000 (Indian Rupees fifteen thousand) to INR 25,000 (Indian Rupees twenty-five thousand) for EPF, mandatory social security coverage for provident fund will extend to a substantial number of additional employees.

Given that the practical impact may vary across employee populations and compensation models, an employee-specific assessment, proactive planning, clear communication with employees, and timely alignment of payroll and compliance processes will be key to ensuring a smooth implementation of the revised EPF framework.

This Prism has been prepared by:

Preetha Soman Partner

Madhur Khandelwal Principal Associate

Aishwarya Maria Manjooran Senior Associate

Nandini Singh Associate

For more details, please contact km@jsalaw.com.