Finance

ESI Rate reduced by Central Government from 6.5% to 4% , Companies and employees will benefit!

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Modi Government 2.0 has given a good news to almost 36 million people of almost 1.3 million organisation on Thursday by announcing a cut in contributions made by employers and employees towards social security and health insurance scheme i.e Employees’ State Insurance Corporation (ESIC). Mew rate has been reduced to 4 per cent from its current rate of 6.5%  but new rates will come into effect from 1st July 2019 as per the press notification released by the Ministry of Labour. This move would lead to an whooping estimated annual savings of around Rs. 5,000 crore for organisation (i.e almost 7 million USD) and of course employee will have more in hand money at the end of the month.

“The government has taken a historic decision to reduce the rate of contribution under the Employees’ State Insurance Act from 6.5 per cent to 4 per cent (with employers’ contribution reduced to 3.25 per cent from 4.75 per cent, and employees’ reduced to 0.75 per cent from 1.75 per cent),” the ministry said.

The ministry said that the reduced rate of contribution will bring about a substantial relief to workers and facilitate further enrolment of workers under the Employees’ State Insurance (ESIC) scheme and bring more and more workforce into the formal sector.

Government is struggling with slowing down of economy and unemployment rate if highest in last 45 years (6.1%) so this move is a preventive action against to tackle those issues. How successful it will be? Well only time will tell but one thing we know for sure is that if companies will save money they will invest it which may increase job opportunities which means more jobs and the money saved by employee will increase there purchasing power hence more demand  of goods, but in a 2.5 trillion USD economy it is just a drop in ocean. It is a welcome move but Union Government has to do more than mere reducing ESIC price in near future to tackle the unemployment issue.

Around 1.3 million employers and 36 million employees contributed Rs. 22,279 crore towards the Employees’ State Insurance (ESI) scheme in 2018-19. Government also expecting that reduction in rate of ESI contribution shall lead to improved compliance of law as more employers will follow the ESIC law now due to less burden.

The Employees’ State Insurance Act 1948 (the ESI Act) administered by Employees’ State Insurance Corporation (ESIC) which provides for medical, cash, maternity, disability and dependent benefits to the insured persons under the Act. Under the ESI Act, both employers and employees contribute their shares respectively in the prescribed by act. The Government of India through the Ministry of Labour and Employment decides the rate of contribution under the ESI Act. The wage ceiling of coverage was enhanced from Rs. 15,000 per month to Rs. 21,000 from January 1, 2017.

Government is trying to bring more and more people under medical coverage umbrella as many people can not afford high medical bills, therefore to broaden the social benefit umbrella government has brought many schemes to cover people under medical coverage.


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