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Govt reduces rate of contribution towards ESI scheme, employers to benefit

Somesh Jha/New Delhi 13 Jun 19 | 07:31 PM

The government on Thursday reduced the total rate of contribution towards the Employees’ State Insurance scheme from 6.5% to 4% for the first time in over two decades.

The move is expected to benefit around 1.3 million employers, who will see a 40% reduction in the rate of contribution they make for their employees, as per the provisions of the Employees’ State Insurance Act 1948.

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Nearly 4.75 per cent of a worker’s monthly salary goes towards ESI as the employer’s contribution, 1.75 per cent of the income is the employee’s share at present. Now, 3.25% will be the employer’s share and 0.75% the employee’s share which will be effective from 1 July 2019--a move the government said “would benefit 36 million employees and 1.28 million employers."

“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," the government said in a statement.

“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 said.

A top Employees State Insurance Corporation official said that the move is expected to reduce the annual burden of over 1 million employers by Rs 8000 crore-Rs 9000 crore. The ESIC received Rs 22,279 crore from employers towards the ESI scheme in 2018-19, the official added.

The ESI Act provides for medical, cash, maternity, disability and dependent benefits to employees drawing a salary up to Rs 21,000 per month. The ESI Act applies to factories with 10 or more workers and it is also applicable to shops, hotels, restaurants, cinemas and road transport undertakings.

“From a business perspective, the contribution towards insurance and provident fund comes as a cost burden to companies. This will help firms to hire more workers through savings in the rate of contribution," said the official, cited above.

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