15 Jun 2019Posted By: Mudit Handa


Government Reduces the ESI Contribution Rates

Employees' State Insurance or ESI is undoubtedly one of the most beneficial schemes run by the Central Government of India. The main aim of ESI is to cover all the financial risks of the employees of the organized sector. The most economical and preferable way for an average employee to cover social security risks is, to obtain an ESI registration.

The government gives various benefits employees covered under ESI registration. For instance, families covered under the NHPS scheme can access medical facilities via ESI Hospitals.

In this regard, the Government of India had recently decided to reduce the ESI Contribution rates from 6.5% to 5%. Now, the Ministry of Labour & Employment has notified that the rates of ESI Contribution shall be reduced to 5%, out of which: 

  • Employer Contribution shall be reduced from 4.75% to 3.25%.
  • Employee Contribution shall be reduced from 1.75% to 0.75%.
The Government will finally make these reduced ESI Contribution rates effective from 1st July 2019.
 

1. What revisions have been made to the ESI Contribution rates?

Government has recently reduced the rates of ESI Contribution of the employees as well as employees as follows:

 ESI Contribution 

Current Rate (%)

Revised Rate (%)

 Employer’s Share

4.75

3.25

 Employee's Share

1.75

0.75

 Total ESI Contribution

6.50

4.00

 
 

2. Why has the government reduced the ESI Contribution rates?

The government has reduced the ESI Contribution rates with a view to providing substantial relief to the workers. Here are some reasons behind the government's decision:

  • Government has stated that this will boost further ESI registration of workers.
  • As a result, more and more workforce will be brought under the organized sector. This workforce will get all the benefits of the ESI scheme.
  • A reduction in the share of employers' ESI contribution will bring down the financial burden of the organizations leading to enhanced Ease of Doing Business.
  • It is also expected that the reduction in the rate of employees' ESI contribution shall bring more employees under ESI cover. This will further boost compliance.

 

3. How many times have ESI Contribution rates been changed?

This is the 1st time the government has reduced the ESI Contribution rates. The existing ESI Contribution rate of 6% was prevalent since 1997.

 

4. What are the recent reforms under the ESI scheme?

The government has recently introduced certain key reforms in the ESI scheme, which are as follows-

  • In order to expand Social Security Coverage to more people, the Government had begun a program of special ESI registration of employers and employees from December 2016 to June 2017.
  • Besides, the coverage of the scheme was extended to all the districts in India in a phased manner. 

 

5. How have these measures been beneficial? 

The current efforts of Government have been fruitful and have resulted in a substantial rise in the number of employees having ESI Registration i.e. more persons having ESI cover. This has also led to a quantum increase in ESIC revenue. The figures have been given below-

 Financial Year 

Total Employers

Total Employees

(in crores)

Total contribution

(in ₹ crores)

 2015-16

7,83,786

2.1

11,455

 2016-17

8,98,138

3.1

13,662

 2017-18

10,33,730

3.4

20,077

 2018-19

12,85,392

3.6

22,279

 

No doubt, the most preferable way for an employee to cover all social security risks is to obtain an ESI registration.

Also, read the 

In case you require any sort of assistance regarding the ESI registration feel free to contact us at 8881-069-069.

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