Government of India reduces ESIC contribution from 6.5% to 4%

ESIC contribution

The Government of India has reduced the rate of ESIC contribution under the Employees’ State Insurance Act (‘ESI Act’) from 6.5 percent of the total wages to 4% of the total wages.

The reduced rates are effective 1 July 2019. The Ministry of Labour and Employment of the Government of India has issued a gazette notification int his regard.

The ESI Act is one of the social security laws in India which provides for medical, cash, maternity, disability and dependent benefits to the eligible employees covered under the ESI Act. All employees with a gross pay of less than INR 21,000 per month would be eligible to be covered under this scheme.

The ESI Act is administered by Employees’ State Insurance Corporation (‘ESIC’) and various benefits to the employees are funded by way of contributions from both Employees as well as the Employer.  The current contribution which has been in existence from January 1997 is 6.50%, out of which the Employee contributes 1.75% and the balance 4.75% is the employers’ share.

As per the reduced rates a total of 4% is now required to be deducted in place of 6.50%.  The employees’ share of contribution has been reduced from 1.75% to 0.75%, while the Employer is required to contribute 3.25%, a reduction of 1.50% from 4.75%.

As per the press release of the Ministry for Labour and Employment, the reduction in rate of ESI is estimated to benefit 3.6 crore employees and 12.85 lakh employers.

Benefits of reduction in ESIC rate

  • Reduced financial liability on employers and facilitating ease of doing business in India
  • Increase in the take-home salary of employees
  • Encourage employers to bring in more informal workforce into the formal sector

Read about All Allowances paid as part of salary are subjected to PF contribution

DISCLAIMER: The views expressed are strictly of the author and VJM & Associates LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

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