ESI contribution rate reduced for employers and employees

Hello, this post is about the latest update on the reduction of the ESI contribution rate for both employers and employees.

The Government of India has taken a historic decision to reduce the rate of contribution under the ESI Act from 6.5% to 4%(employers’ contribution being reduced from 4.75% to 3.25% and employees’ contribution being reduced from 1.75% to 0.75%).

Reduced rates will be effective from 01.07.2019. This would benefit 3.6 crore employees and 12.85 lakh, employees.

The reduced rate of contribution will bring about a substantial relief to workers and it will facilitate further enrollment of workers under the ESI scheme and bring more and more workforce into the formal sector.

Similarly, reduction in the share of contribution of employers will reduce the financial liability of the establishments leading to improved viability of these establishments. This shall also lead to enhanced Ease of Doing Business. It is also expected that the reduction in the rate of ESI contribution shall lead to improved compliance of the law.

The Employees’ State Insurance Act 1948 (ESI Act) provides for medical, cash, maternity, disability, and dependent benefits to the Insured Persons under the Act.

The ESI Act is administered by the 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 the Ministry of Labour and Employment decides the rate of contribution under the ESI Act.

Presently, the rate of contribution is fixed at 6.5% of the wages with employers’ share being 4.75% and employees’ share being 1.75%. This rate is in vogue since01.01.1997.

The Indian government in its pursuit of expanding the Social Security Coverage to more people by starting a special registration of employers and employees from December 2016 to June 2017. The government also extended the coverage of the scheme to all the districts in a phased manner.

The wage ceiling of coverage was also increased from Rs. 15,000/- per month to Rs. 21,000/- from 01.01.2017.

These efforts resulted in a substantial increase in the number of registered employees i.e. Insured Persons and employers and also a quantum jump in the revenue income of the ESIC.

The figures are as under:

The Government of India is committed to the cause of the welfare of employees as well as employers.

It is also committed to improving the quality of medical services & other benefits being provided under the ESI scheme.

Source