From Wage Subsidy to Universal Social Security ?

 

 

Context :

Govt’s wage subsidy via EPFO to spur job creation   /  MINT – 13 Nov

Highlights :

     

ELIGIBLE EMPLOYEES :

( A )   New Employees

         Any person with monthly wage of less than Rs 15,000 and not registered

        earlier with EPFO. these workers should be first-time entrants into the EPFO

        system

        

( B )   Old Employees

         Those who lost job between March 01 and Sept 30 AND whose wage was 

         less than Rs 15,000

( C )   Period for grant of Subsidy                                

         2 years from date of employment ( any date between Oct 20 and June 21 )

( D )   Method of subsidizing

        The subsidy support will be credited upfront in Aadhar-seeded EPFO accounts

         of ELIGIBLE NEW employees (Aadhar seeding will help track the beneficiary

        better )

         

( E )   How many establishment will get covered ?

         More than 95 % of the establishments

( F )   Funds allotted

         Rs 6,000 crore  [  Rs 600,000 lakh ]

 

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                                            SUMMARIZING

=====================================================================

Size of Employer Company	No of NEW employees that must be hired ( above the base of September 2020 employee count )	Subsidy = 12 % of NEW employees’ share	Subsidy = 12 % of Employer Company’s share for each NEW employee
Less than 50 workers	2	yes	yes
More than 50 workers	5	yes	yes
Less than 1,000 workers	5	yes	yes
More than 1,000 workers	5	yes	NO

 

===================================================

Let us assume ( for a Company with employee count of less than 1,000 ) as follows :

Ø  Every NEW hire ( or re-hired who had lost job ) is paid a monthly wage of Rs 15,000 / - ( simplifying )

Ø  24% of Rs 15,000 = Rs 3,600 ( = Amount of subsidy per month )

Ø  So , for a full year, subsidy will amount to Rs 43,200 (For 2 years = Rs 86,400 per NEW employee )

So , with fund allocation of Rs 600,000 lakh, how many NEW employees can benefit from this scheme for full 2 years ?

Rs 600,000 lakh  / Rs 0.86 lakh = 6, 97, 674

Now the “ Number of NEW employees that must be hired by a company to take advantage of this scheme , ranges between minimum 2 to 5 ( depending upon the current employment number )

Let us say, average would be 3 NEW employees per “ benefiting “ organization

Hence, the number of organization that would benefit from this scheme, would be :

6,97,674  /  3 ( ave. no of NEW employees per organization ) = 2,32,558

Now, as per latest estimates , we have some 65 million ( 650 lakh ) MSME companies in India , employing close to 140 million workers

So this scheme would benefit :

Ø  Some  6.97  lakh NEW workers against existing employee strength of 1400 lakh in MSME alone

Ø  Some  2.32  lakh companies against existing 65 million ( 650 lakh ) MSME companies alone

===================================================

May be I am going terribly wrong with my assumptions and data ! So, I looked up following news report in Business Line ( 14 Nov ) :

Govt to take help from industry chambers to create jobs under new scheme

          Distribution of Factories in operation by size of employment

Employment Size	No of Factories	Ave Employees ( assumed)	Total No of Employees
0 - 14	75,179	7	526,253
15 - 19	16,965	17	288,405
20 - 29	20,672	25	516,800
30 - 49	22,419	40	896,760
50 - 99	23,058	75	1,729,350
100 - 199	16,034	150	2,405,100
200 - 499	11,980	350	4,193,000
500 - 999	4,749	750	3,561,750
1000 - 1999	2,487	1500	3,730,500
2000 – 4,999	1,390	3500	4,865,000
5000 and above	652	7000	4,564,000
TOTAL	195,585		27,276,918

 

Irrespective of the correctness of ASSUMPTIONS regarding the “ No of Employees / No of Employers  “ data, following questions will need to be correctly answered ( by human verifiers or by software ) , in respect of each person hired before SUBSIDY CLAIM from any company can be entertained  :

Ø  What date did he join ? { before 01 Oct 2020 / Between Oct 2020 – June 2021 / After June 2021 }  

Ø  At what wage-level did he join ? { < 15,000 / = 15,000 / > 15,000 }

Ø  Is he a NEW ( first time ) employee or an OLD employee who had lost job ? What proof ? He could have lost job in company X and got re-hired by company Y  !

Ø  Is the company submitting “ claim “ ( for subsidy ) , registered with EPFO or not registered ?

Ø  Has this ( claimant ) company hired any NEW / OLD workers after Sept 30 , 2020 ?

Ø  If yes , how many ? More or less than the stipulated numbers ?

Ø  What was this company’s actual Employee strength as on 30 Sept 2020 ?

Ø  What is the PROOF that this company really / actually hired the persons claimed ?

Ø  A Company may go on hiring NEW / OLD employees , every month between Oct 20 – June 21 . Should that company submitted CLAIMS every month ? Imagine 27 million companies filing SUBSIDY CLAIMS ( for anywhere between 1 to a hundred workers ) EVERY MONTH for 9 months !

I cannot escape the feeling that the,

Ø  Compliance ( record-keeping / feeling up ONLINE claim forms ) burden by the claimant companies, and

Ø  Administrative burden by EPFO / Finance Ministry / Income Tax Department et.,

- would  far exceed the benefit to be derived !

I believe Finance Ministry plans to submit a CABINET NOTE re this scheme within 15 days ( for Cabinet approval )

I urge Smt Sitharamanji , to re-assess the COST / BENEFIT aspects of this scheme before asking Cabinet nod

She may even consider to modify this scheme ( with a HUGE simplicity of administering and not a single form to be filled by companies ), as suggested in my following earlier e mail :

SOMETHING IS BETTER THAN NOTHING ………………………………..[ 07 Feb 2016 ]

 

With regards,

Hemen Parekh  /  15  Nov  2020  /  hcp@RecruitGuru.com