Government reduces rate of ESI contribution from 6.5% to 4%

New Delhi: The government has decided to reduce the rate of contribution under the ESI Act from 6.5 percent to 4 percent wth employers contribution being reduced from 4.75 to 3.25 percent and that of employees from 1.75 to 0.75 percent effective from July 01.

The reduction in rates will benefit 3.6 crore employees and 12.85 lakh employers, an official release said.

“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 reduction in rate of ESI contribution shall lead to improved compliance oflaw,” the release said.

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

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.