In this article we shall discuss the impact of the reduced ESI contribution rate and how it will help the salaried workforce.
The Central government has announced a reduction in the rate of contributions by employers and employees towards the Employee State Insurance scheme of 4% from the existing 6.5%, effective from July 1, 2019. Nearly 3.6 crore employees and 12.85 lakh employers are said to benefit from ESI contribution from this move, which would bring annual savings of Rs 5,000 crore.
Key Points of ESI Contribution Rate
The following are the key points of the revision of the ESI contribution Rate
- The rate of contribution was reduced to 4% from 6.5%, effective from July 1, 2019
- Expected to bring annual savings of Rs 5,000 crore
- Would be beneficial for nearly 12.85 lakh employees
Impact of ESI Contribution Rate
In a government press release, the Labour Ministry said, “The government has taken a historic decision to reduce the ESI contribution rate under the Employees’ State Insurance 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%”.
The ministry also said that the reduction will bring relief to workers and more workforce into the formal sector. In addition, it is expected to reduce the financial liability of establishments, thereby leading to ease of doing business.
Conclusion
The ESI Act provides medical, cash, maternity, and other dependent benefits to employees funded by the contributions made by employers and employees. Employees earning up to Rs 21,000 are covered under ESI. The wage ceiling was increased to Rs 21,000 from Rs 15,000 in December 2016 to increase the formal workforce.
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