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500 firms approach labour ministries for employee salary choice

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Manpower solutions firm TeamLease is spearheading an initiative backed by over 500 companies to goad ministries of labour and human resources development to allow employees to choose their own salary and investment options. 

A petition has been submitted to the ministry seeking three individual choices on compensation for low wage employees.

It proposes that an employee should be given the freedom to choose a) 12% PF contribution to be made optional; b) right to choose whether 12% employer contribution should go to EPS or NPS and; c) whether to pay their ESI contribution to the ESI Corporation or purchase insurance from any Irda regulated insurance company. 

There is no proposal to make the employer Provident Fund voluntary (it must be mandatory) and the status quo of employee paying his/her EPF contribtuion to EPFO should be available. 

These choices, said Rituparna Chakraborty, convenor of the petition and co-founder, TeamLease, will greatly impact take home pay and reduce informal employment. "Millions of jobs need to be created if our aspirations and domestic demand are to be met. However, all these initiatives are still likely to fail the nation and its people if our ‘salary confiscation’ regime does not change," she said.

India’s labour laws mandate the highest salary deductions for low wage employees in the world. In a cost-to-company (CTC) world this can mean an almost 44.31% salary deduction for low wage employees and contrary to public objectives this is only 5.32% for high wage employees. 

Economic data suggests that low-wage employees do not have such high savings rate and mandating savings higher than real savings leads to high attrition and high informal employment because employees cannot live on half their salary.

Currently in a cost to-company model informal employees can take home their entire salary while employees in the organised sector lose nearly 50% of their earnings to schemes like PF, Employees State Insurance (ESI), Professional Tax, Employees Pension Scheme (EPS), statutory bonus and gratuity forcing them to live on half their salary which they can’t. 

"Hence most choose informal employment where gross and net salaries are the same. The plight is amplified further by the poor value of schemes wherein ESI has India’s worst health insurance claims ratio and EFPO is the world’s most expensive government securities mutual fund with 50% of their account dormant because of poor service," Chakraborty said.

Moving away from the current benefits confiscation regime is the need of the hour because it harms the people it is trying to protect. Recognising the cost-to-company model and revamping these labour laws would greatly benefit youth, increase formal employment and accelerate voluntary migration.

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