Centre reduces ESI contribution rate from 6.5 to 4%

The Centre on Thursday reduced the rate of contribution under the ESI Act from 6.5 per cent to 4 per cent, with employers' contribution being reduced from 4.75 to 3.25 per cent and employees' contribution from 1.75 to 0.75 per cent.

Reduced rates will be effective from July 1, an officials statement said, adding that the reduction 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, the statement said.

It is also expected that the reduction in the rate of ESI contribution shall lead to improved compliance of the law. 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 the Employees' State Insurance Corporation (ESIC). Benefits provided under the ESI Act are funded by the contributions made by the employers and the employees.

The Government of India through the Ministry of Labour and Employment decides the rate of contribution under the ESI Act. Presently, the rate of contribution is fixed at 6.5 per cemt of the wages with employers' share being 4.75 per cent and employees' share being 1.75 per cent. This rate is in vogue since January 1, 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 January 1, 2017," the statement read.