Government reduced the ESI contribution rate to 4% from 6.5%

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The Government reduced the Employees State Insurance (ESI) contribution rate to 4% from 6.5%. This will benefit 36 million workers and 1.28 million employers and will lead to an estimated annual saving of around Rs 5,000 crore for firms. The reduced rates will be effective from July 1, 2019. The Central government through the Ministry of Labour & Employment decides the rate of contribution under the ESI Act.

  • The Labour Ministry stated that there will be a reduction of 1.5% in employers’ contribution to 3.25% from 4.75% and 1% reduction in employees’ contribution to 0.75% from 1.75%.
  • In 2018-19, 12.85 lakh employers and 3.6 crore employees contributed Rs 22,279 crore towards the ESI scheme.
  • Reduction in the share of contribution of employers will reduce the financial liability of the establishments leading to improved viability of these establishments and will enhance Ease of Doing Business.
  • The Employees’ State Insurance Act 1948 (the ESI Act), administered by the Employees’ State Insurance Corporation (ESIC), provides for medical, cash, maternity, disability and dependent benefits to the Insured Persons under the Act.
  • The ESI Act 1948 under the labour ministry covers employees with salary up to Rs 21,000.