Government reduces rate of ESI contribution from 6.5% to 4%

The government has decided to reduce the rate of contribution under the ESI Act from 6.5 per cent to 4 per cent wth employers contribution being reduced from 4.75 to 3.25 per cent and that of employees from 1.75 to 0.75 per cent.

Reduced rates will be effective from July 1 this year and it would benefit 3.6 crore employees and 12.85 lakh employers.

An official release said the reduced rate of contribution will bring about a substantial relief to workers and it will facilitate further enrollment of workers under the ESI scheme and bring more and more workforce into the formal sector.

It said reduction in the share of contribution of employers will reduce the financial liability of the establishments leading to improved viability of these establishments.

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). Benefits provided under the ESI Act are funded by the contributions made by the employers and the employees.

Under the ESI Act, employers and employees both contribute their shares respectively. The government through Ministry of Labour and Employment decides the rate of contribution under the ESI Act.

The rates that have been changed have been in vogue since 1997.