Government Reduces Rate of ESI Contribution from 6.5% to 4%

Reduced the salary contribution of industrial workers who are eligible for healthcare benefits under the Employees’ State Insurance Act (ESI) Act from 6.5% to 4%.

Employees’ contribution slashed from 1.75% to 0.75% of their Salary

Employers’ contribution will come down from 4.75% to 3.25%

The move is aimed at formalising India’s informal workforce and expanding social security coverage.

The ESI applies to organisations with 10 or more employees, drawing a salary of up to ₹21,000.

The healthcare benefits under the ESI scheme will remain the same, but employees would now have to contribute just 0.75% of their salary (basic plus allowances), instead of the existing 1.75%, while the employers’ contribution will come down from 4.75% to 3.25%, according to the ministry of labour and employment.

The reduced rates will be effective from 1 July. “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 members of the workforce into the formal sector,”.

Reduction in the share of contribution of employers will reduce the financial liability of the establishments, leading to improved viability of these establishments. The reduced rate of contribution means lower cost for both the employees and the employers. The employee gets a higher take home salary. A lower rate of contribution does not affect the benefits defined in the scheme.

It would benefit 36 million insured persons and 1.3 million organizations.

Note:- The notification is awaited. However, the ministry had issued s press release to announce the same, which is as follows-

Ministry of Labour & Employment

Government Reduces the Rate of ESI Contribution from 6.5% to 4%

Posted On: 13 JUN 2019 7:35PM by PIB Delhi

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 employers.

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 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% of the wages with employers’ share being 4.75% and employees’ share being 1.75%. This rate is in vogue since 01.01.1997.

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

These efforts resulted insubstantial 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: –

Year No. of Employers No. of Insured Persons (in crores) Total contribution received (in Rs. crores)
2015-16 7,83,786 2.1 11,455
2016-17 8,98,138 3.1 13,662
2017-18 10,33,730 3.4 20,077
2018-19 12,85,392 3.6 22,279

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

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

RELEVANT NOTIFICATION IS AS FOLLOWS:-

MINISTRY OF LABOUR AND EMPLOYMENT
NOTIFICATION
New Delhi, the 13th June, 2019

G.S.R. 423(E).Whereas a draft containing certain rules further to amend the Employees’ State Insurance (Central) Rules, 1950 were published in the Gazette of India, Extraordinary, Part-II, Section-3, Sub-section (i), vide number G.S.R. 12 1(E), dated the 15th February, 2019, as required by sub-section (1) of the section 95 of the Employees’ State Insurance Act, 1948 (34 of 1948), inviting objections or suggestions from all persons likely to be affected thereby before the expiry of a period of thirty days from the date on which the copies of the Official Gazette containing the said notification was published were made available to the public;

And whereas, the copies of the said Official Gazette were made available to the public on the 15th February, 2019;

And whereas, objections or suggestions received from the public in respect of the said draft rules within the period specified above have been considered by the Central Government;

Now, therefore, in exercise of the powers conferred by section 95 of the said Act, the Central Government, after consultation with the Employees’ State Insurance Corporation, hereby makes the following rules further to amend the Employees’ State Insurance (Central) Rules, 1950, namely:-

1. (1) These rules may be called the Employee’s State Insurance (Central) Amendment Rules, 2019;

(2) They shall come into force on the 1st day of July, 2019.

2. In the Employees’ State Insurance (Central) Rules, 1950, in rule 51, –

(a) in clause (a), for the words “equal to four and three-fourth per cent of the wages”, the words “equal to three and one-fourth per cent. of the wages” shall be substituted;

(b) in clause (b), for the words “equal to one and three-fourth per cent of the wages”, the words “equal to three-fourth per cent. of the wages” shall be

[F. No. S-38012/01/2016-SS-I]

VIBHA BHALLA, Jt. Secy.

Note: The principal rules were published in the Gazette of India, Part-II, Section 3, Sub-section (i), vide number S.R.O. 212, dated the 22nd June, 1950, and last amended by notification number G.S.R. 605 (E), dated

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