Government Reduces Rates of Contribution for Employers and Employees under the ESI Act
On 13 June 2019, the Ministry of Labour and Employment, Government of India, issued a notification (Notification) amending Rule 51 of the Employees’ State Insurance (Central) Rules 1950 to reduce the rate of the contribution required to be made under the Employees’ State Insurance Act 1948 (ESI Act) from 6.5% to 4%. The Notification declares 1 July 2019 as the date on which the reduced rates of contribution would become effective.
Impact on Employees: The reduced rate of contribution is expected to provide substantial relief to employees. It will bring in many more employees within the ambit of the ESI Scheme and result in an increased workforce joining the formal sector. Further, the reduced rate of contribution will in turn lead to an increase in cash in hand of the eligible employees, thereby strengthening their financial position.
Impact on Employers: The revised rate of contribution will reduce the financial liability of employers significantly. With lesser contributions to be made, employers will now have the ease of doing business and be better compliant with the law.
It may be noted that certain labour reforms have been pending for the past several years. However, with the new Government, discussions on these reforms have resurfaced. This reduced rate of ESI contribution can be considered as one of the first few steps taken by the Government in this direction and is likely to be welcomed by employers and employees.
- Anshul Prakash (Partner), Abhimanyu Pal (Senior Associate) and Deeksha Malik (Associate)
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