The Ministry of Labour and Employment has amended the Employees’ State Insurance (Central) Rules, 1950 through a gazette notification dated 13 June 2019, to reduce the overall ESI contribution rate under the Employees’ State Insurance Act, 1948 from 6.5% to 4%, with effect from 1 July 2019. The employer contribution has been reduced to 3.25% (earlier 4.75%) and employee contribution has been reduced from to 0.75% (earlier 1.75%) of the wages by amendment to Rule 51 of the said Rules. This is expected to not only lessen the financial liability of employers but also lead to ease of doing business and enhanced compliance of law.
The last revision in the contribution rates was done on 1 January, 1997. The wage ceiling of coverage was enhanced from Rs. 15,000/- per month to Rs. 21,000/- from 1 January 2017.
SAM & Co comment
The intent and purpose behind reducing the contribution rate is to cast a wider net to expand the reach of the social security coverage to a larger population. This change is pro both employee and employer and in keeping with the ease of doing business objective. It will not only reduce the financial liability of the employer and but will also encourage increased participation under the employees’ state insurance regime.
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