- The government of India has announced reduction in the rate of contribution under the Employees’ State Insurance (Act) from 6.5% to 4%.
- The employers’ contribution has been reduced from 4.75% to 3.25% and employees’ contribution has been reduced from 1.75% to 0.75%.
- The move is aimed at formalising India’s informal workforce and expanding social security coverage. Further, reduction in the share of contribution of employers will reduce the financial liability of the establishments leading to improved viability of these establishments.
- It is also expected that reduction in rate of ESI contribution will lead to improved compliance of law.
- The Employees’ State Insurance Act 1948 (the ESI Act) provides for medical, cash, maternity, disability and dependent benefits to the Insured Persons under the Act. The ESI Act is administered by Employees’ State Insurance Corporation (ESIC), Ministry of Labour and Employment.
- Benefits provided under the ESI Act are funded by the contributions made by the employers and the employees. The Government of India through Ministry of Labour and Employment decides the rate of contribution under the ESI Act.
- The ESI Act, 1948, applies to organisations with 10 or more employees, drawing a salary of up to Rs. 21,000/ month (Rs 25000/ month in case of persons with disabilities). The threshold for coverage of establishments is 20 employees in Maharashtra and Chandigarh.
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