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Change in ESI Contribution Rates

Narendra Kumar

| Updated: Jun 17, 2019 | Category: ESI Registration

ESI Contribution

A Draft containing certain rules was published in official gazette regarding the amendment in Employees’ State Insurance Rules, 1950. Under which government has reduced the ESI contribution which will take effect from 1st July 2019 from 6.5% to 4% with the motive to provide a substantial relief to workers and that will result in more workforce into the formal sector.

  • The Date of drafting rules in the official gazette as required by Section 95(1) of Employees’ State Insurance Act – 15th February 2019
  • The Date on which Official Gazette was made available to the public – 15th February 2019
  • The Date on which notification shall come into force – 1st July 2019

What is ESI Contribution?

Employees’ State Insurance is self-financing security benefits for employees by providing medical, sickness, dependent, maternity, employment injury and Funeral benefit start with their 1st day of on the job.

Additional benefits are also provided by the condition to complete their job for a certain time period.

Applicability of ESI Contribution Scheme

ESI Scheme is applicable in all factories. It can also apply to other sectors such as Industrial, Commercial and agricultural sector as per the order of Appropriate Government.

ESI Contribution

Benefits of ESI Scheme

ESI is providing various benefits to the employees by providing Six Social Benefits-

  • Medical Benefits
  • Sickness Benefits
  • Maternity Benefits
  • Disablement Benefits
  • Dependents Benefits
  • Other Benefits like Funeral, old age Medicare, Physical and Vocational Rehabilitation

What are the Reasons for the change in ESI Contribution Scheme?

The government has taken such steps of reducing the employee contribution for the following reasons –

  • Big relief to the workers.
  • A contribution by the employer will reduce financial liability.
  • To improve the viability of the establishments.
  • To Enhance the ease of doing Business.
  • To increase the final salary of the employees and to reduce the burden of the Employers.

The reduction of 2.5% includes a reduction of –

  • 1.5% in Employer contribution from 4.75% to 3.25%
  • 1% in Employees contribution from 1.75% to 0.75%
ESIC CONTRIBUTION REVISED RATE EXISTING RATE
Employer 3.25% 4.75%
Employee 0.75 1.75%

Now the Total ESI contribution is 4%

Note – Earlier the wage ceiling for coverage under the scheme has resulted in increase in enrollments


Note –Under the Scheme in 2018-19 of ESI, the data of Labour Ministry shows – 36 million workers are insured under ESI with the contribution of Rs 22,279 crore.

Administration and Facilities Provided by ESI Act 1948

The administration of ESI Act is administered by (ESIC) Employee State Insurance Corporation. It provides the benefit of-

  • Medical,
  • Cash,
  • Maternity,
  • Disability and dependent benefits to the insured person.

These Benefits are provided under ESI are funded by the contribution made by both the Employer and Employee.

Highlights of the Notification

Notification Dated 13th June 2019, Revised ESI Contribution rates are (Employer 3.25%, Employee 0.75%)

G.S.R. 423 (E)-Whereas a draft containing certain rules further to amend the Employees’ State Insurance (Central) Rules, 1950 were published in the Gazette of India, Extraordinary, Part-II, Section-3, Sub-section (i) vide number G.S.R. 121(E), dated the 15th February, 2019, as required by sub-section (1) of the section 95 of the Employees’ State Insurance Act, 1948 (34 of 1948), inviting objections or suggestions from all persons likely to be affected thereby before the expiry of a period of thirty days from the date on which the copies of the Official Gazette containing the said notification was published were made available to the public;

In the Draft Rules following amendments shall be made –

  1. Rules may be called the Employees’ State Insurance (Central) (Amendment) Rules, 2019.
  2. Draft rules shall come into force on the date of its final publication in the official Gazette.
  3. Amendment in Rule 51 of the Employees’ State Insurance (Central) Rules, 1950, Words ‘’equal to Four percent of the wages’’ shall be substituted against the word “equal to four and three fourth percent of the wages. Words “equal to one percent of the wages” shall be substituted against the word“equal to one and three fourth percent of the wages”.

Who has the Authority to decide the rate of ESI Contribution under ESI Act?

GOI (Government of India) through the Ministry of Labour and Employment decides the rate of contribution of Employers and employees.

ESI Contribution

Conclusion

With the view to increase the in-hand salary of the employees and to reduce the financial burden of the employer the government has reduced the rate of ESI contribution of Employer and employees under ESI Act which as a result also reduces the financial liability and to improve the working condition of the organization.The revision of rates is finalized by the government after taking into consideration the suggestions of the stakeholder.

Also Read: Why ESI Registration is Mandatory?

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Narendra Kumar

Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.

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