The government has reduced the contribution under the Employees’ State Insurance (ESI) Act to 4% from 6.5%, a move expected to increase the takehome salary of workers as well as reduce the financial burden of employers. The decision will benefit 36 million workers and 1.28 million employers.
This includes 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%, the labour ministry said in a statement on Thursday.
“The reduced rate of contribution will bring about a substantial relief to workers and will bring more and more workforce into the formal sector,” the ministry said.
Similarly, it said, a reduction in the share of contribution of employers will reduce the financial liability of the establishments, leading to improved viability of these establishments, and also lead to enhanced ease of doing business.
The ESI Act 1948 under the labour ministry covers employees with salary up to Rs 21,000. Aiming to increase the country’s formal workforce, the government had raised the wage ceiling in December 2016 to Rs 21,000 from Rs 15,000.
The government’s move to raise the wage ceiling for coverage under the scheme has resulted in an increase in enrolments under the scheme.
Labour ministry data shows 36 million workers were insured under the scheme in 2018-19, with a contribution of Rs 22,279 crore.