Government reduces ESI contribution rate to 4% from 6.5%

The Government reduces contribution rate for the employers and employees

Prime Minister Narendra Modi led government has reduced the contribution under the Employees’ State Insurance (ESI) Act to 4% from 6.5%. This move is expected to increase the take-home salary of employees as well as lessens the financial burden of companies. The decision would profit 36 million employees as well as 1.28 million employers.

The government reduces in contributions made by employers as well as employees towards the health insurance of ESIC to 4 % from the existing 6.5%.  Back of the envelope calculations recommend that reduction in the contribution rate for employers shall results in annual savings of over Rs 5,000 crore to these companies.

The labour ministry has said in a statement that this move incorporates a reduction of 1.5% in employers’ contribution towards 3.25% from 4.75% as well as 1% reduction in employees’ contribution to 0.75% from 1.75%.

Near about 4.75% of an employee’s monthly wage goes towards ESI as the employer’s contribution, 1.75% of the income is the employee’s share presently. Now, 3.25% would be the employer’s share and 0.75% the employee’s. This would be effective from 1st July 2019 where 6 crore employees and 12.85 lakh employers will be benefitted.

The benefit of the reduced contribution rate to 4% from the existing 6.5% for the employers and employees

The healthcare benefits under the ESI scheme would remain the same, but workers would now have to contribute only 0.75% of their income (basic plus allowances), rather than the existing 1.75%, while the employers’ contribution would drop from 4.75% to 3.25%, as said by the ministry of labour and employment. The ministry has also stated that the reduced rate of contribution would bring about a substantial relief to employees as well as facilitate further enrollment of employees under the Employees' State Insurance (ESIC) scheme and bring increasingly more employees into the formal sector.

Similarly, it said, a cut in the share of contribution of employers will reduce the financial liability of the establishments, leading to improved possibility of these establishments, and also lead to improved ease of doing business.

Experts held that the reduction in ESI contribution might have been possible due to the lower cost as well as better efficiency in operating the health insurance scheme.

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The Employees State Insurance Act, 1948

The Employees State Insurance Act of 1948 is applicable towards organisations with 10 or more workers, drawing a salary of up to 21,000. The Employees State Insurance Act is administered by the Employees' State Insurance Corporation (ESIC). The benefits that are provided under the ESI Act are funded by the contributions made by the employers and the workers.

The Employees State Insurance Act 1948 under the labour ministry also covers workers with salary up to Rs 21,000. However, intending towards increasing the country’s formal workforce, the government had raised the wage ceiling in December 2016 to Rs 21,000 from Rs 15,000.

The government’s move for raising the wage ceiling for coverage under the scheme has resulted in an increase in enrolments under the scheme.

The ESI Act provides for medical, cash, maternity, disability as well as dependent benefits towards the insured individuals funded by the contributions made by the employers and the workers. The Employees’ State Insurance Corporation, under labour ministry, administers the scheme.

The government, in its interest in the direction of expanding social security coverage to more individuals, had carried out a special programme to register employers and workers between December 2016 and June 2017. It had likewise decided to extend the coverage of the ESI scheme to every one of the districts across the country in a phased manner. For availing benefits under the programme, the wage ceiling also increased from 15,000 per month to 21,000 from 1 January 2017.

The efforts brought about an increase in the number of registered workers and employers and led towards a substantial jump in the revenue income of the ESIC. The data from the labour ministry showed the number of insured increased from 31 million in 2016-17 to 36 million in 2018-19, the total contribution jumped from 13,662 crores to 22,278 crores.

A number of schemes towards helping the lower middle class were also announced since the NDA government returned to office for their 2nd term with a landslide majority last month.

In its first meeting of Union cabinet, they introduced a pension scheme for traders, shopkeepers, as well as the self-employed, besides expanding the scope of the income support scheme for farmers, which was announced in the interim budget in February.

Author:

eStartIndia Team