The government on June 13 cut the rate of contribution under the Employees’ State Insurance Act (ESI Act) to 4 percent from 6.5 percent. The first reduction in 22 years will be effective July 1.

With this reduction, the employers’ contribution to the ESI Act has been reduced to 3.25 percent from 4.75 percent and the employees’ contribution has been reduced to 0.75 percent from 1.75 percent. According to a release, the reduced rates will be effective from July 1.

The move is expected to benefit 3.6 crore employees and 12.85 lakh employers. The reduced rate of contribution is expected to facilitate further enrollment of workers under the ESI scheme and bring more of the workforce into the formal sector.

The note also stated that a reduction in the share of contribution of employers is expected to enhance the ease of doing business and improved compliance of the law.

For FY18-19 ESIC received a total contribution of Rs 22,279 crore

The Employees’ State Insurance Act 1948 (ESI Act) provides for medical, cash, maternity, disability and dependent benefits to the Insured Persons under the Act. The ESI Act is administered by the Employees’ State Insurance Corporation (ESIC). Benefits provided under the ESI Act are funded by the contributions made by the employers and the employees.

Under the ESI Act, employers and employees both contribute their shares respectively. The government, through the Ministry of Labour and Employment, decides the rate of contribution under the ESI Act.