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New employees get paid of 8.33% for first three years in India

NEW DELHI: In Budget 2016, government proposes to pay 8.33 per cent for all new employees for first three years of employment. A total of Rs 1,000 crore has been allocated towards it. The scheme will be applicable to those with salary up to Rs 15,000 per month. The move is expected to help ease the employer's burden to some extent.

From the employee's basic salary, 12 per cent of it goes towards his EPF account while the employer also contributes an equal amount.

However, not all amount of employer's contribution moves into employee's EPF but only 3.67 per cent is diverted into it. The balance i.e. 8.33 per cent of employer's monthly contribution moves into employee's pension scheme (EPS).

From September 1, 2014, EPS is only for those new members earning less than Rs 15,000.

To know what you will get from EPS, here the formula:

(Pensionable Salary * service period) / 70.

The pensionable salary is capped at Rs 15,000 and service period at 35 years. Thus, maximum would be Rs 7,500 per month pension. For most who are contributing before September 1, 2014, it will much less as earlier pensionable salary was capped at Rs 6,500.

Government had recently made the following amendments to the EPS, 1995:

Wage ceiling for contributions to EPS, 1995 had been enhanced from Rs.6,500 to 15,000/- per month.

Determination of pension based on average of 60 months' salary prior to exit instead of 12 months' salary earlier.

Option for contributing on salary exceeding the wage ceiling has been deleted.

Those members who were contributing on salary exceeding the wage ceiling are required to prefer fresh option and contribute 1.16 per cent of wages exceeding wage ceiling in lieu of the Government's contribution.