ESI contribution dropped to 4% for industrial workers

The government has recently reduced the salary contribution from 6.5% to 4% for industrial workers who are eligible for healthcare benefits under the Employees’ State Insurance Act (ESI) Act. The move was taken to formalise India’s informal workforce and expanding social security coverage. The ESI Act, 1948, applies to organisations with 10 or more employees, drawing a salary of up to Rs 21,000. The scheme, which is governed by the state-administered ESIC, provides for medical, cash, maternity, disability, and dependent benefits to the insured. It is considered by the experts that Centre’s move will improve compliance and coverage of the scheme and will benefit 36 million employees working in more than 1.3 million organizations. The employees would now have to contribute just 0.75% of their salary (basic plus allowances), instead of the existing 1.75%, while the employers’ contribution will come down from 4.75% to 3.25%, according to the ministry of labour and employment. However, the benefits would remain same. The reduced rates will be effective from July 1. “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 members of the workforce into the formal sector,” the ministry said. “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 is also expected that reduction in rate of ESI contribution shall lead to improved compliance of law,” it said. Experts said the reduction in ESI contribution might have been possible because of the lower cost and better efficiency in operating the health insurance scheme. “The reduced rate of contribution means lower cost for both the employees and the employers. The employee gets a higher take home salary. A lower rate of contribution does not affect the benefits defined in the scheme,” said Gopal Kumar, actuary and economist, Radgo & Co. The government had opened up last year the healthcare units running under the ESIC to general public. The units offer subsidized medicine, as well as out-patient and in-patient facilities at a nominal cost. Around 154 hospitals and 1,500 dispensaries are operated by the ESIC across the country.