As of 1 July 2019, the Employees' State Insurance (ESI) (Central) Rules 1950 have been amended to reduce the required rates of contribution to the statutory fund maintained by the ESI Corporation for the provision of sickness and health benefits.
This is the first such amendment since 1997. Prior to the amendment:
- employers had to contribute 4.75% of each employee's wage to the statutory fund; and
- employees had to contribute 1.75% of their wage to the statutory fund.
These rates have been reduced to 3.25% and 0.75%, respectively. The aim of this change is to cast a wider net by expanding social security coverage to a larger part of the population.
The ESI Act is a piece of social security legislation which provides for insurance and other benefits relating to sickness, maternity, disability and death. It applies to employees whose monthly wages are Rs21,000 or more.
This change is beneficial to both employees and employers and in keeping with the 'Make in India' initiative's ease of doing business objective. As well as reducing employers' financial liability and potentially increasing employees' take-home pay (albeit infinitesimally), the change will encourage increased participation in the workforce.
However, news reports indicate that – as is often the case – the change has come under criticism. For example, the Central Trade Unions have stated that more stringent inspection to ensure compliance would have been better than a reduction in ESI contributions.
Nonetheless, the amendment is a welcome change for businesses in India, as it will also assist small and medium-sized enterprises and start-ups partaking in the ESI scheme.
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