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Current Affairs

Government Cuts Employees' State Insurance Contribution Rate

Date: 14 June 2019 Tags: Industries

The Union Ministry of Labour & Employment has taken decision to reduce the rate of contribution under the Employees' State Insurance (ESI) Act from 6.5% to 4%. It has reduced employers’ contribution from 4.75% to 3.25% and employees’ contribution from 1.75% to 0.75%. The reduced rates will be effective from 1 July 2019.

Impact

The reduction of ESI rates will benefit 3.6 crore employees and 12.85 lakh employers. It will also bring about substantial relief to workers by increasing their takehome salary as well as reduce the financial burden of employer. It will further facilitate enrollment of workers under the ESI scheme and bring more and more workforce into the formal sector. The reduction in the share of contribution of employers will reduce the financial liability of their establishments and lead to improved viability of these establishments and further enhance ease of doing business

Employees’ State Insurance Act 1948 (ESI Act)

  • It provides for medical, cash, maternity, disability and dependent benefitsto the Insured Persons under the Act. It is administered by Employees’ State Insurance Corporation (ESIC).
  • Benefits provided under it are funded by the contributions made by employers and employees. Under Both employers and employees contribute their shares respectively.
  • Union Government through Ministry of Labour and Employment decides the rate of contribution under the ESI Act.