The Ministry of Labour and Employment has, for the first time in twelve years, introduced a much-awaited increase in the wage ceiling under the Employees’ Provident Fund (EPF) Scheme. The wage revision from Rs. 15,000 to Rs. 25,000 has been made through Notification S.O. 5109(E) dated 17.09.2026, effective from that date (“Notification”).
The enhancement has important implications for employers, as they will now have to reassess the eligibility of employees for coverage, assess the financial implications of the increased contribution obligations, and ensure timely payment of the contributions.
The Statutory Change and Its Reach
Issued under Section 2(89) of the Code on Social Security, 2020 (“the Code”), the Notification setting the wage ceiling for Chapter III[1] at Rs. 25,000 operates within the recently notified Employees’ Provident Funds Scheme, 2026 (“EPF Scheme”), Employees’ Pension Scheme, 2026 (“EPS Scheme”) and Employees’ Deposit Linked Insurance Scheme, 2026 (“EDLI Scheme”) (collectively, the “Schemes”) and does not independently rewrite every eligibility condition in the Schemes.
Impact of the Notification on Employers
Employers must now brace themselves for the financial and compliance-related impact of the Notification. The revised ceiling would, first and foremost, most probably be an unbudgeted cost. Most employers would have built their payroll and provident fund outlay around the Rs. 15,000 threshold, and few would have factored a jump to Rs. 25,000 into this year’s financial planning. Even for those prepared for an enhancement, the fact that the effective date falls in the middle of the wage month, not on the first day, would be an unpredictable impediment. This leaves little time for an employer to assess its additional annual liability, evaluate the alternatives, and adjust its payroll.
A step-by-step approach to addressing the changes arising from the revised wage ceiling is set out below:
Step 1: Determining Wages before Applying the Ceiling
A crucial legal nuance of the revision under the Code is how it interacts with the standardised definition of “wages” under Section 2(88) of the Code. “Wages” include basic pay, dearness allowance and retaining allowance, and specify certain exclusions from the definition of wages.[2]
Under the erstwhile legislation, namely, the Employees’ Provident Funds and Miscellaneous Provisions Act of 1952, contributions were based on basic wages, the dearness allowance and the retaining allowance. Salary structures often kept basic pay low and assigned a larger part of remuneration to allowances, including house rent, conveyance and special allowances. The treatment of these components mattered because excluding them could keep the contribution base within Rs. 15,000.
The definition of “wages” now includes a specific measure to prevent excessive exclusions; if the amount of the excluded payments exceeds 50 per cent of the remuneration determined by the relevant provision, then the excess must be added back to the wages for the purpose of calculating contributions. Another important aspect to consider is that employer contributions are excluded from the definition of “wages”. This distinction must be kept in mind while determining and computing “wages” for contributions.
For employers who have not yet restructured their salary structures in accordance with the New Labour Codes, this is an appropriate time to do so, particularly in view of the additional social security contributions arising from the revised wage ceiling.
While determining “wages” under the New Labour Codes, employers must also consider the judicial principles laid down under the erstwhile labour legislations. In this regard, the judgment of the Hon’ble Supreme Court in Regional Provident Fund Commissioner (II), West Bengal v. Vivekananda Vidyamandir, is particularly relevant. The Hon’ble Court held that allowances paid universally, necessarily and ordinarily to employees would form part of basic wages for provident fund contributions. The nomenclature of an allowance is not determinative; rather, its nature and the terms of employment are relevant in deciding whether it forms part of basic wages.
A similar approach may be relevant when determining “wages” under the New Labour Codes, particularly where an emolument is paid universally and ordinarily to employees. Accordingly, companies should not merely apply a Rs. 25,000 wage threshold to their existing payroll data. They must first assess the salary structure of their employees and determine the components that form part of “wages” for the purpose of calculating social security contributions.
Step 2: Reviewing and Identifying the Employees
Upon determining the wages, employers would be required to identify employees whose wages fall within the revised wage ceiling of Rs. 25,000, i.e., employees earning between Rs. 15,000 and Rs. 25,000. Such employees, who were previously outside the scope of mandatory coverage, would now be required to be enrolled under the EPF Scheme. Employers would also be required to make the applicable contributions for these employees for September 2026. These employees would constitute the newly mandatorily covered category.
The second category would comprise employees who are already contributing to the EPF Scheme on actual wages or higher wages pursuant to an existing arrangement.
Under the EPF Scheme, employees falling within the prescribed wage ceiling are mandatorily required to become members. Further, the EPF Scheme also permits an excluded employee[3] to become a member, notwithstanding that their wages exceed the prescribed ceiling, provided the employer and employee jointly exercise the option in writing to enrol such employee.[4]
In respect of employees already contributing on higher wages, employers would also be required to review their existing contribution arrangements. Where contributions were previously being calculated on the basis of the earlier wage ceiling of Rs.15,000, despite the employee’s actual PF wages being higher, the enhancement of the wage ceiling may result in an increase in the applicable EPF, EPS and EDLI contributions, as well as the administrative charges.
Step 3: Update Payroll Calculations
Where PF contributions are required to be made on the revised applicable wages, the employee’s contribution may increase, as it is calculated as a percentage of wages. For instance, at a PF wage of Rs. 20,000, an employee contribution at the rate of 12% would amount to Rs. 2,400 per month, as opposed to Rs. 1,800 on a wage ceiling of Rs. 15,000.
Since both the employer and the employee are required to contribute, the increase in contributions may have an impact on the employee’s take-home salary. Employers should, therefore, clearly communicate the respective contributions to employees, explaining the changes reflected in their payslips and distinguishing between the employee’s and the employer’s respective liabilities. While the increased employee contribution may reduce take-home pay, it is accompanied by a corresponding increase in the employer’s contribution. It also helps employees build their retirement savings, earn interest, and avail themselves of applicable tax benefits, while contributing towards pension and insurance benefits, subject to the eligibility conditions under the respective schemes.
Including the employer’s contribution in the Cost to Company (“CTC”) is not, in itself, unlawful. However, CTC is not a statutory basis for determining an employer’s PF liability. The liability to contribute must be determined in accordance with the applicable statutory definition of wages and the relevant provisions of the EPF Scheme. CTC generally represents the total cost incurred by an employer towards an employee. What is important, therefore, is how the employer addresses the additional contribution liability arising from the revised wage ceiling. A fixed CTC, by itself, does not justify a reduction in the employee’s agreed wages to accommodate the employer’s increased contribution liability.
Employers should accordingly assess the incremental contribution liability on an employee-wise and business-unit-wise basis, review the implications for existing CTC structures and examine their employment contracts and policies. They should also ensure that any changes to payroll are clearly communicated to employees, particularly where such changes affect their take-home salary.
Step 4: Filing of the Electronic Challan-cum-Returns (ECR)
The EPF Scheme requires the employer to remit both the employer’s and the employee’s contributions in the first instance, within fifteen days of the close of every month. [5] The effective date of 17 September 2026 requires employers to distinguish between existing contributors and employees newly becoming eligible for coverage pursuant to the revised wage ceiling. The EPFO has clarified that employers need to file a single Electronic Challan-cum-Return (“ECR”) for September 2026, covering both periods.
Accordingly, employers would be required to calculate contributions separately for the two periods: the period preceding 17 September 2026 and the period commencing from 17 September 2026, and report the contributions for both periods in a single ECR.[6]
Illustration: Assume that Employee A earns PF wages of Rs. 22,000 per month. Previously, Employee A was not mandatorily covered as his wages exceeded the earlier ceiling of Rs. 15,000. However, as the wage ceiling has been revised, Employee A would be mandatorily covered with effect from 17 September 2026.
The contributions for September 2026 would be calculated separately for the two periods:
● 1–16 September 2026: As Employee A would not have been mandatorily covered under the earlier wage ceiling, no mandatory contribution would be payable for this period, unless the employee was already covered under an arrangement.
● 17–30 September 2026: As Employee A would become mandatorily covered from 17 September, the employer would be obliged to calculate and make the applicable employer and employee contributions for this period.
● ECR for September: The contribution for both periods would be reported in a single ECR, with the applicable contribution calculated separately.
● For subsequent months: The contributions would be calculated on the applicable PF wages, in accordance with the revised wage ceiling and the provisions of the EPF Scheme.
The FAQs also address a situation where the deductions could not be processed in September for newly eligible employees. In such cases, recovery may be made in the next payroll cycle without prior approval from the Inspector-cum-Facilitator.[7] However, it should be noted that the concession concerns recovery from the employees and does not defer the September ECR or payment of either share.
The consequences of getting compliance wrong are considerably more exacting than a simple late fee. The EPF Scheme places the obligation to remit both the employer’s and the employee’s share on the employer in the first instance[8], and where an employer misses the window for lawfully deducting the employee’s share, whether through a payroll oversight or because coverage itself was determined only after the fact, it may end up bearing both shares out of its own funds.[9]
Liability of Principal Employers for Contract Labour
The liability of an employer extends beyond its own employees to contract labour as well. Under Paragraph 20(3) of the EPF Scheme, 2026, the principal employer is responsible for the payment of both the employer’s and the employee’s contributions, along with the applicable administrative charges, in respect of employees directly employed by it as well as those employed through a contractor. Further, under Paragraph 20(4), the principal employer is liable to pay any contributions due in respect of contract labour.
While an indemnity from the contractor may provide the principal employer with a contractual remedy in the event of a default, it does not absolve either party of its statutory obligations towards the EPFO. Accordingly, employers must ensure that the wage records and contribution details submitted by contractors accurately reflect the actual number of workers engaged and the wages paid to them. This would require employers to regularly reconcile contractor wage records with the corresponding EPF contributions to identify any discrepancies and ensure timely compliance.
Conclusion
Employers should not wait for the next payroll cycle to begin reviewing their affected employee population. The immediate priority should be to identify, calculate, enrol, report, remit and reconcile. In particular, employers should ensure that employees who fall within the revised mandatory coverage requirements are appropriately covered from the effective date and that the September 2026 ECR accurately reflects the applicable contributions. Employers should continue to monitor any EPFO circulars and portal instructions for subsequent operational clarifications.
*Ms. Arpita Mukherjee, Senior Partner
**Ms. Vanshikha Gupta Associate
.
[1] Chapter III (Employees’ Provident Fund), Code on Social Security, 2020.
[2] Section 2(88), Code on Social Security, 2020.
[3] Paragraph 2(f), Employees’ Provident Funds Scheme, 2026.
[4] Paragraph 9, Employees’ Provident Funds Scheme, 2026.
[5] Paragraph 20, Employees’ Provident Funds Scheme, 2026.
[6] EPFO, Frequently Asked Questions on Revision of EPFO Statutory Wage Ceiling, available at: https://pmvbry-cdn.epfindia.gov.in/wpcontent/uploads/2026/09/EPFO_Wage_Ceiling_FAQs.pdf#:~:text=FREQUENTLY%20ASKED%20QUESTIONS%20(FAQs),Notification
[7] Paragraph 22, Employees’ Provident Funds Scheme, 2026.
[8] Paragraph 20, Employees’ Provident Funds Scheme, 2026.
[9] Section 125, 127 and 128, Code on Social Security, 2020.