Govt reduces ESI contribution rate from 6.5% to 4%
14 June 2019
The government on Thursday announced a major decision to reduce the rate of contribution under the Employees State Insurance Act (ESI Act) from 6.5 per cent to 4 per cent. While employers’ contribution will go down from 4.75 per cent to 3.25 per cent, employees’ contribution is being reduced from 1.75 per cent to 0.75 per cent.
The reduced rates, which will be effective from 1 July 2019, would benefit 36 million employees and 1.29 million employers, an official release stated.
The reduced rate of contribution will bring about a substantial relief to workers and will facilitate further enrollment of workers under the ESI scheme and bring more and more workforce into the formal sector.
At the same time, a reduction in the share of contribution of employers will reduce the financial liability of the establishments leading to improved viability of these establishments. This will also lead to enhanced ease of doing business. It is also expected that reduction in rate of ESI contribution would lead to improved compliance of law.
The Employees’ State Insurance Act 1948 (the ESI Act) provides for medical, cash, maternity, disability and dependent benefits to the Insured Persons under the Act. The ESI Act is administered by Employees’ State Insurance Corporation (ESIC). Benefits provided under the ESI Act are funded by the contributions made by the employers and the employees.
Under the ESI Act, employers and employees both contribute their shares respectively. The Government of India through ministry of labour and employment decides the rate of contribution under the ESI Act. At present, the rate of contribution is fixed at 6.5 per cent of the wages with employers’ share being 4.75 per cent and employees’ share being 1.75 per cent. This rate is in vogue since 1 January 1997.
The Government of India in its pursuit of expanding the social security coverage to more and more people started a programme of special registration of employers and employees from December 2016 to June 2017 and also decided to extend the coverage of the scheme to all the districts in the country in a phased manner. The wage ceiling of coverage was also enhanced from Rs15,000 per month to Rs21,000 from 1 January 2017.
These efforts resulted insubstantial increase in the number of registered employees, ie, insured persons and employers and also a quantum jump in the revenue income of the ESIC. The increase in the number of employers, number of insured employees and total contribution received under the ESI scheme areas under:
The Employees' State Insurance Scheme is an integrated measure of social insurance designed to protect 'employees' against the impact of incidences of sickness, maternity, disablement and death due to employment injury and to provide medical care to insured persons and their families. The ESI Scheme applies to factories and other establishment's viz. road transport, hotels, restaurants, cinemas, newspaper, shops, and educational/medical institutions wherein 10 or more persons are employed. However, in some states threshold limit for coverage of establishments is still 20.