Rate of ESI contribution reduced from 6.5% to 4%

NetIndian News Network

New Delhi, June 14, 2019

The Government has reduced the rate of contribution under the Employees State Insurance (ESI) Act from 6.5% to 4% in a step aimed at providing substantial relief to workers and facilitating further enrolment under the ESI scheme.
The reduction in the rate is also expected to bring more and more workforce into the formal sector.  The employers’ contribution has been cut from 4.75% to 3.25% and employees’ contribution from 1.75% to 0.75%.
The reduced rates will be effective from July 1, 2019. This would benefit 3.6 crore employees and 12.85 lakh employers.
Reduction in the share of contribution of employers will reduce the financial liability of the establishments leading to improved viability. It will also lead to enhanced Ease of Doing Business. It is also expected that a reduction in the rate of ESI contribution will lead to improved compliance of the 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 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 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% of the wages with employers’ share being 4.75% and employees’ share being 1.75%. This rate is in vogue since January 1, 1997.
The Government, 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 Rs 15,000 per month to Rs 21,000 from January 1, 2017.

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