New Delhi, Jun 13: In what has been described as a 'historic' decision, the Union Government on Thursday reduced the rate of contribution under the ESI Act from 6.5 per cent to four per cent, with employers' contribution being reduced from 4.75 per cent to 3.25 per cent and employees' contribution reduced from 1.75 per cent to 0.75 per cent. The reduced rates will be effective from July 1, this year.
"This would benefit 3.6 crore employees and 12.85 lakh employers", said the Ministry of Labour and Employment, in a statement here.
The reduced rate of contribution will bring about a substantial relief to workers and facilitate further enrollment of workers under the ESI scheme and bring 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 shall also lead to enhanced Ease of Doing Business. It is also expected that reduction in the rate of ESI contribution shall lead to improved compliance of law", the statement said.
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 Union Government, through the Ministry of Labour and Employment, decides the rate of contribution, under the ESI Act.
"The Government of India, in its pursuit of expanding the Social Security Coverage to more people, 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", the statement added.
The wage ceiling of coverage was also enhanced from Rs 15,000 per month to Rs 21,000 from January 1, 2017. (UNI)