Government reduced ESI contribution rate to 4 percent

The Ministry of Labour and Employment, Government of India (“Government”) has amended Employees’ State Insurance Act1948 (“ESI Act”) vide notification GSR 423(E) dated 13.06.2019 (“Notification”). The Notification amends the rates of contribution from 6.5% to 4% under the Employee’s State Insurance Scheme (“ESI Scheme”). The employer’s share has been reduced from 4.75% to 3.25% and employees’ share from 1.75% to 0.75%.

The change has been brought by amending Rule 51 of Employees’ State Insurance Central Rules, 1950 framed under ESI Act and the change will be effective from 01.07.2019. In our view, primarily, the effect of this amendment will be two fold – (i)firstly, more people will be covered under the ESI Scheme as employers may choose thee said scheme over private insurance schemes; and (ii) secondly, the reduced rates of contribution will lessen the financial liability of employers. The employees will also have a better take home salary.

Despite its effects, certain trade unions have opposed the reduction in contribution rates, as they feel this will reduce the facilities and benefits to employees under the ESI Act. In our view, the Government should allay their fears by assuring that nothing of such sort will happen. Further, the Government should encourage more private hospitals to enroll under ESI Scheme increasing the facilities available for members contributing to the ESI Scheme an making it lucrative even for employers to enroll in it.