Government reduces the Rate of Contribution under the Employee State Insurance Act

The Ministry of Labour and Employment, Government of India issued notification on June 13, 2019 (“Notification”) amending Rule 51 of the Employees’ State Insurance (Central) Rules 1950 in order to reduce the rate of contribution under the Employees’ State Insurance Act 1948 (“Act”) from 6.5% to 4%. This is the first reduction in 22 years and will be effective from July 1, 2019. The Act is applicable to organizations with 10 or more employees, drawing salary up to INR 21,000 (Indian Rupees Twenty One Thousand) per month. Any benefits provided under the Act are funded by the contributions made by the employers and the employees. As per the Act, the employers and employees are required to contribute to the Employees’ State Insurance Corporation (“ESIC”) with employers’ share being 4.75 % and employees’ share being 1.75 %. Pursuant to this Notification, the employers’ contribution rate will be 3.25% and the employees’ contribution rate will be 0.75%. The Employee State Insurance Scheme (“ESI Scheme”) which is administered by ESIC is a multi-dimensional social security scheme tailored to provide socio-economic protection to the ’employees’ in the organized sector against the events of sickness, maternity, disablement and death due to employment injury and to provide medical care to the insured employees and their families. The Government of India (“Government”) in order to extend the social security coverage to a large section of workforce started a programme of special registration of employers and employee from December, 2016 to June, 2017 and also extended the coverage of the ESI Scheme to all the districts in the country in a phased manner. As a result of it, there has been a substantial increase in the number of registered employees and employers under the ESI Scheme. As per the data of the Government, 3,60,00,000 employees and 12,85,392 employers have enrolled under the ESI Scheme in the year 2018-19 and will be significantly benefitted from this positive move by the Government. MBC Comment The reduced rate of contribution means lower cost for both the employees and employers. The employee gets a higher take home salary. It is expected that the reduced rate of contribution will bring about a substantial relief to the workers and will further promote the enrolment of more workers under the purview ESI Scheme. For employers, this development will reduce their financial burden leading to enhanced ease of doing business and improved legal compliance.   Last Updated: 21st June 2019 This article is contributed by:  Vineet Verma Senior Associate, Legal

Tag: Employee Contribution, Employee State Insurance Act, Employees' Benefit, ESIC, Government of india