Union Budget 2024-2025: Employment Law & Participatory Contribution to EPFO

Employees are vital for any business, and the cost of their social security, especially the contribution to the Employee Provident Fund, is a crucial consideration that pre-dates the hiring decisions. To increase employment generation the Union Budget 2024-2025 the Government will implement the following 3 schemes for ‘Employment Linked Incentive’. 

The said incentives will be based on enrolment in the EPFO, and focus on recognition of first-time employees, and support to employees and employers.

The proposed scheme envisages incentives at a specified scale directly to the employee and the employer for their EPFO contribution in the first 4 years of employment. All additional employment within a salary of INR 1 lakh per month will be counted. The Government will reimburse employers up to INR 3,000 per month for 2 years towards their EPFO contribution for each additional employee.

Outline of Schemes of the scheme are given below:

1. Employment Linked Incentive Scheme A: First Timers

• One month’s wage as subsidy (maximum INR 15,000)
• Applicable to all sectors 
• First timers have a learning curve before they become fully productive; subsidy is to assist employees and employers in hiring of first timers.
• Applicable to all persons newly entering the workforce (EPFO) with wage/salary less than `1 lakh per month.
• Subsidy will be paid to the employee in three instalments
• Employee must undergo compulsory online Financial Literacy course before claiming the second instalment.
• Subsidy to be refunded by employer if the employment to the first timer ends within 12 months of recruitment.
• Expected to cover approximately one crore persons per annum.
• Scheme will be for 2 years

2. Employment linked Incentive Scheme B: Job creation in manufacturing 

• Applicable for substantial hiring of first time employees in the manufacturing sector
• All employers which are corporate entities and those non-corporate entities with a three year track record of EPFO contribution will be eligible.
• Employer must hire at least the following number of previously non-EPFO enrolled workers:
  • 50 or
  • 25% of the baseline (previous year’s number of EPFO employees)

[whichever is lower]

• Incentive will be paid for four years partly to the employee and partly to the employer as follows:

Year	Incentive (as % of wage / salary, shared equally between employer & employee)
1	24
2	24
3	16
4	8

• Employer must maintain threshold level of enhanced employment throughout, failing which subsidy benefit will stop. 
• Employee must be directly working in the entity paying salary/wage (i.e. in-sourced employee).
• Employees with a wage/ salary of up to `1 lakh per month will be eligible, subject to contribution to EPFO.
• For those with wages/salary greater than `25,000/month, incentive will be calculated at `25,000/month.
• Subsidy to be refunded by employer if the employment to first timer ends within 12 months of recruitment.

• This subsidy will be in addition to benefit under Part-A
• Scheme will be for 2 years

3. Employment Linked Incentive Scheme C: Support to employers

• Applicable to an employer who:
  • Increases employment above the baseline (previous year’s number of EPFO employees) by at least two employees (for those with less than 50 employees) or 5 employees (for those with 50 or more employees) and sustains the higher level, and
  • For employees whose salary does not exceed `1,00,000/month 
  • New employees under this Part need not be new entrants to EPFO
• For two years Government will reimburse EPFO employer contribution up to INR 3,000/month to the Employer for the additional Employees hired in the previous year.
• If the employer creates more than 1000 jobs:
  • Reimbursement will be done quarterly for the previous quarter
  • Subsidy will continue for the 3^rd and 4^th year on the same scale as Employer benefit in Part-B
• Not applicable for those Employees covered under Part-B.
• This subsidy will be in addition to benefit under Part-A.
• Scheme will be for 2 years

The above Scheme is significant for any establishment while planning their hiring strategy and is a key development on the employment law and practice front to watch.