Come July, salaried employees will have to contribute less under the Employees’ State Insurance (ESI) scheme.

The government has decided to lower the rate of contribution under the ESI Act to 4 per cent, from 6.5 per cent. This means employers’ contribution will come down to 3.25 per cent from 4.75 per cent and employees’ share will be 0.75 per cent against 1.75 per cent. This would benefit 3.6 crore employees and 12.85 lakh employers.

According to the ESI Act, any factory with 10 or more employees (20 in the case of Maharashtra and Chandigarh) needs to be part of ESI. It covers employees with wages up to ₹21,000 per month (₹25,000 in the case of persons with disability). Persons insured under the Act get medical, cash, maternity, disability and dependent benefits. Benefits provided under the ESI Act are funded by the contributions made by the employers and the employees. The ESI Act is administered by Employees’ State Insurance Corporation (ESIC).

According to an official statement, the reduced rate of contribution will bring about a substantial relief to workers and it will facilitate further enrolment of workers under the ESI scheme and bring more and more workforce into the formal sector. Similarly, reduction in the share of contribution of employers will reduce the financial liability of the establishments leading to improved viability of these establishments. This will also lead to enhanced Ease of Doing Business. It is also expected that reduction in rate of ESI contribution shall lead to improved compliance of law.

With an intention to expand social security coverage for more and more people, the government started a programme of special registration of employers and employees from December 2016 to June 2017 and also decided to extend the coverage of the scheme to all the districts in the country in a phased manner.