Union Government Reduces The Rate Of ESI Contribution

On 13th June 2019, the Ministry of Labour and Employment, Government of India, issued a notification no. G.S.R. 423 (E) amending Rule 51 of the Employees’ State Insurance (Central) Rules 1950 to reduce the rate of contribution required to be made by both employers and employees’ under the Employees’ State Insurance Act, 1948 (Act) from previous rate of 6.5% to 4%. As per the notification, the reduced rates of contribution would come into force from 1st July 2019.

The previous rate of contribution was fixed at 6.5% of the wages, out of which the employers share was 4.75% and the remaining 1.75% as employees’ share. However, pursuant to the notification, the rate of the contribution is reduced to 4%, out of which the employers’ share will be 3.25% and the employees’ share will be 0.75%.

The Act is applicable to factories and establishments wherein 10 or more persons are employed, except in the state of Maharashtra and Chandigarh wherein the threshold for coverage of establishments is 20 employees. The Act covers only those employees’ having their salary up to INR 21,000 (Indian Rupees Twenty-One Thousand) per month or less. The Act provides the insured persons with medical benefits among other facilities.

These reduced rates will be a substantial relief to workers and will facilitate more enrolment of workers under the ESI scheme and also bring more workforce in the formal sector. The move will lead to increase in cash in hand of the eligible employees.

The financial liability on employers would also be reduced, leading to improved viability of the establishments, increased ease of doing business and likely improved compliance with the law.