Relief for Salaried Class as Centre Reduces Employees’ State Insurance Rates by 2.5%

New Delhi: In what may raise net salaries of employees, 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 July 1, an official statement said, adding that the reduction would benefit 3.6 crore employees and 12.85 lakh employers.

ESI Act acts as a social security scheme for employees in the organised sector. The employees registered under the scheme are entitled to medical treatment for themselves and their dependents, unemployment cash benefit in certain contingencies and maternity benefit in case of women employees.

The reduced rate of contribution will also facilitate further enrollment of workers under the ESI scheme and bring 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.

The ESI Act is administered by the Employees' State Insurance Corporation. 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.

"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 added.