ESI Contribution Rate Reduced, Relief for Employees and Employers

Government of India has taken a long awaited decision to reduce the ESI contribution rate for both employers and employees from 6.5% to 4% per month.

ESI scheme is a statutory medical insurance scheme governed by the The Employees State Insurance Act, 1948. The act is applicable on entities having 10 or more employees on roll. The employees drawing gross salary less than INR 21,000 per month are covered under the scope of the scheme.

ESI Contribution Rate

Currently the rate of contribution under the scheme is 6.5% of the monthly gross salary out of which 1.75% is contributed by the employee and balance 4.75% is contributed by the employer.

New rate of contribution is 4% of the monthly gross salary out of which

Employee Share	0.75% of monthly gross salary
Employer Share	3.25% of monthly gross salary

Th reduced rate is effective from 01st July 2019.

Reduction to the extent of 1.5% of employers salary cost will definitely provide a big cost relief to the industry and give further encouragement for better compliance.

Employee’s in-hand salary will also increase by 1% which is another good news for the employees as the benefits of the scheme remains intact.

This will be the first direct benefit or relief provided by the newly re-elected Modi government to the business community and labour class.

In the previous tenure Modi government brought PMRPY (Pradhan Mantri Rozgar Protsahan Yojana) to  relax the EPF contribution rate for new joiners and ESI SPREE under which more than 88,931 employers were added having 1 crore employees.

The industry is also expecting government to re-open the PMRPY window or relax the EPFO contribution rate since honorable Supreme Court of India in its judgement on 28.02.2019 clarified that the EPF contribution shall be made on Gross salary excluding HRA, bonus and commission. Previously generally accepted rule was to contribute 24% on Basic + D.A. which is borne equally by employer and employee. 

Lesser the rate of contribution leads to lesser cost of running business and better compliance.