Alert

Government enhances Provident Fund Wage Ceiling to INR 25,000 per month

The Ministry of Labour and Employment has notified the revised wage ceiling of INR 25,000 per month, replacing the earlier ceiling of INR 15,000 per month for the purposes of provident fund, pension fund and deposit-linked insurance compliances under Code on Social Security, 2020 (the Code).

Background and effective date

Notification S.O. 5109(E), dated 17 September 2026, prescribes INR 25,000 as the monthly wage ceiling for Chapter III of the Code and supersedes the earlier notification prescribing the ceiling of INR 15,000. The notification states that it takes effect from its publication in the Official Gazette, i.e., 17 September 2026. The Ministry’s earlier notification S.O. 2702(E), dated 29 May 2026, had prescribed the INR 15,000 ceiling.

Key implications

• Mandatory Provident Fund (PF) coverage

The revised threshold may also bring in the employees whose ‘wages’ as defined under the Code are above INR 15,000 and up to INR 25,000 per month within mandatory PF coverage, subject to the applicable membership and excluded-employee provisions.

• PF contributions and take-home pay

As per the EPF Scheme, employers and employees are required to contribute 12% of ‘wages’ as their respective contribution to PF, subject to applicable rules and permitted exceptions. However, the EPF Scheme also permits the employer to restrict the contribution to the statutory ceiling. Where contributions are restricted to the statutory ceiling, the maximum monthly PF contribution at the earlier INR 15,000 ceiling was INR 1,800 per month which will now increase to INR 3,000 per month on the revised ceiling. The employee’s increased contribution may reduce take-home pay.

Illustrative calculation:

S.No.	Total salary	‘Wages’ as per Labour Codes	Mandatory employer’s and employee’s Contribution @24% with 25000 Ceiling	Mandatory employer’s and employee’s Contribution @24% with 15000 Ceiling	Additional Cost
1	23,000	13,000	3,120	3,120	NIL
2	30,667	17,333	4,160	3,600	560
3	38,333	21,667	5,200	3,600	1,600
4	46,000	25,000	6,000	2,400	3,60

Where contributions are already being made on salary above INR 25,000, the revision may not change the total contribution.

• Pension coverage and employer contribution allocation

The increase may broaden mandatory pension coverage for eligible employees whose ‘wages’ fall above INR 15,000 and up to INR 25,000, subject to prior membership and scheme conditions. The employer’s contribution to the Pension Fund is calculated at 8.33% of ‘wages’, subject to the notified ceiling, which was earlier INR 15,000. Such amount out of the employer’s contribution to PF is deposited in Pension Fund.

This changes the allocation between PF and pension for the employees who may fall under the ambit of mandatory pension contribution due to increase in wage ceiling but it does not, by itself, change the overall 12% employer contribution rate.

• Employee Deposit-linked Insurance (EDLI) contributions and benefits

Employees newly brought within mandatory PF coverage would also be covered under the EDLI framework, subject to applicable scheme provisions.

• Voluntary Provident Fund (VPF)

The statutory ceiling increase should be distinguished from an employee’s voluntary contribution above the mandatory employee share. VPF elections do not automatically change merely because the statutory ceiling changes.

• Contract labour

Employers should also review contract labour arrangements. Where contractor’s employees are brought within the revised coverage or contribution base, the change may affect social security costs and contractor commercials. Principal employers should review contractor declarations, employee-level evidence, remittance records and monitoring processes in line with their statutory responsibilities.

BDO India Comments

The revised ceiling may expand mandatory social security coverage and increase the wage base for statutory contributions for certain employees. The principal areas for assessment are employee coverage, employer and employees’ PF contributions, pension membership and allocation, EDLI contributions, administrative/inspection charges, payroll configuration and contractor compliance. The actual impact will depend on employees’ wages as defined under the Code, existing membership status, current contribution practice and applicable scheme requirements.

Employer action checklist

• Identify employees potentially newly covered by PF, EPS and EDLI using statutory wages and membership history.
• Quantify employer-cost and employee take-home-pay impacts under existing contribution practices and alternative scenarios.
• Review pension eligibility and allocation, EDLI, and applicable administrative/ inspection charges.
• Validate the wage-period and payroll treatment for the period containing 17 September 2026; check for subsequent EPFO/ Ministry directions before processing adjustments.
• Update payroll configuration, employee master data, ECR and remittance workflows where required.
• Review onboarding and employee declaration processes, including separate treatment of VPF elections.
• Review contract labour populations, contractor commercials and principal-employer monitoring.
• Communicate changes to impacted employees and retain the eligibility assessment and calculation workings.