12% of basic pay in EPF is no longer mandatory:Employees can choose PF contribution above ₹1,800 under new rule

If you are a salaried employee, then this news is for you. Until now, around 8 crore employees of EPFO (Employees’ Provident Fund Organisation) had to contribute 12% of their basic salary, and the company needed to contribute the same amount. However, the Centre notified the new Employees’ Provident Fund Scheme, 2026 on June 29. It has replaced the old EPF Scheme, 1952. Under this, the mandatory employee contribution has been explicitly linked to the statutory wage limit of 15 thousand rupees. This means that now companies are only required to take an EPF contribution of 12% of 15 thousand rupees, i.e., ₹1,800. A contribution of more than ₹1,800 can only continue if the employee voluntarily wishes to do so. If you want to save more for your retirement fund, you can continue to contribute more than ₹1,800 to the EPF. The important thing is that companies don’t need to contribute an equal amount to this additional voluntary contribution, unless they have agreed to do so under an employment contract or company policy. This means that whatever the employee’s contribution to EPF may be, companies will only be legally bound to contribute ₹1,800 to EPF from their side. Additionally, claims for PF withdrawal, pension, or insurance must be settled within 20 days. In case of delay without any solid reason, action will be taken against the Commissioner, and a 12% annual penal interest will have to be paid, which will be deducted from the officer’s salary. The advantage is that the in-hand salary may increase, but the disadvantage is that ‘savings’ will decrease 1. What will be the direct impact on employees? Will the extra money deducted now be received as salary? Currently, most companies used to deduct 12% of the basic salary for PF. Suppose the basic salary is ₹30,000; then ₹3,600 was deducted. After the new rule, only 1,800 rupees need to be deducted from this. The remaining 1,800 rupees is now a matter of ‘choice’, meaning if both the employee and the company agree, this amount can be added to the in-hand salary instead of PF. But this will not happen automatically; it requires the company’s policy and mutual consent. 2. Will companies stop contributing the 12%? Will that money now be added to the salary? The company is now legally obligated to contribute only ₹1,800. Contributing more than this is at the discretion of the company and the employee; no law compels them. However, this does not mean that all companies will immediately stop contributing more. Many companies might continue the old system to retain employees. Each company will make its decision accordingly. 3. How will the government benefit from this change? The government’s aim is not to earn money, but to streamline the old and complex PF law (which had been in effect since 1952) in accordance with the new labor laws. This will clarify rules, reduce paperwork, and is expected to decrease PF-related disputes. 4. Will companies benefit or lose from this? This is beneficial for most companies. Companies that were deducting PF at the full 12% for high-salaried employees can now choose to limit it to ₹1,800. Their legal burden will be reduced. They will get more freedom in structuring salaries. There doesn’t seem to be any disadvantage in this. 5. What will be the impact of a 1,80₹0 contribution to EPF on employees’ future savings? If an employee contributes only ₹1,800 per month to PF, the amount accumulated at retirement will be much less than before. PF offers good interest (around 8.25%), and the more the amount on which this interest is applied, the greater the benefit.
Yes, employees who wish can continue to deposit the same amount as before. The real danger is for those who, due to lack of information or the lure of a higher in-hand salary, choose the option of lower PF contribution. They will receive a very small amount at the time of retirement. 6. What changes can be seen in the salary structure? Changes can be seen especially in companies that determine the entire salary package (CTC). It is possible that the company and the employee together decide that instead of deducting more PF, that money should be added to the in-hand salary or other allowances.
This may slightly increase the monthly salary, but the money accumulated for retirement may decrease. This change will not happen everywhere at once, but gradually and in different ways in different companies.