In a move that is expected to benefit around 12.85 lakh employers and over 3.6 crore employees, the government on Thursday reduced the rate of contribution towards the Employees’ State Insurance scheme from 6.5% to 4%.

After the reduction of rates, effective from July 1, 2019, employers’ contribution will be reduced to 3.25% from current rate of 4.75% while employees’ contribution will be reduced from 1.75% to 0.75%, as per the provisions of the Employees’ State Insurance Act 1948.

The government said the move “would benefit 12.85 lakh employers and over 3.6 crore employees.”

“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,” the government said in a statement.

“Similarly, reduction in the share of contribution of employers will reduce the financial liability of the establishments leading to improved viability of these establishments,” it said.

The government further said that the move would lead to enhanced Ease of Doing Business. It is also expected that the reduction in the rate of ESI contribution will lead to improved compliance of law.

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