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

In a move that could benefit employers, employees and the insurance firms together and provide cover to more informal workforce, the Centre on Thursday reduced the salary contribution to 4% from 6.5% for industrial workers governed under the Employees’ State Insurance Act (ESI) Act.

After the revision, employees’ contribution has been slashed from 1.75% to 0.75% of their salary (basic + allowances) and employers’ contribution has been reduced from 4.75% to 3.25%.

The reduced rates will be effective from July 1 and the move will benefit 3.6 crore insured persons and 12.85 lakh organisations, the labour ministry said.

“The reduced rate of contribution will bring about a substantial relief to workers and it will facilitate further enrolment 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. It is also expected that the reduction in the rate of ESI contribution shall lead to improved compliance of the law," the ministry said in a statement.

The ESIC provides for medical, cash, maternity, disability and dependent benefits to the insured persons under the Act. It is funded through the contributions made by both, the employers and employees.

ESI Act, 1948 applies to organisations where 10 or more people are employed. All employees drawing salary upto Rs 21,000 are covered under the Act.

After the revision, while the employees will be able to take home more salary, the employers could spend less on employees and the insurance firms could get more clients with an expansion of social security coverage.