New Delhi: The government Thursday announced a cut in contributions made by employers and employees toward the health insurance scheme of Employees' State Insurance Corporation (ESIC) to 4% from the existing 6.5%, a move which would lead to an estimated annual saving of around Rs 5,000 crore for firms. The reduced rates will be effective from July 1, 2019, the Labour Ministry said in a release. This would benefit 3.6 crore employees and 12.85 lakh employers.
"The government has taken a historic decision to reduce the rate of contribution under the Employees' State Insurance Act from 6.5% to 4% (employers' contribution being reduced from 4.75% to 3.25% and employees' contribution being reduced from 1.75% to 0.75%)," the ministry said. As many as 12.85 lakh employers and 3.6 crore employees contributed Rs 22,279 crore towards the ESI scheme in 2018-19.
Back of the envelop calculations suggest that reduction in the contribution rate for employers would results in annual savings of over Rs 5,000 crore to these firms.
The ministry said that the reduced rate of contribution will bring about a substantial relief to workers and facilitate further enrollment of workers under the Employees' State Insurance (ESIC) scheme and bring more and 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 rate of ESI contribution shall lead to improved compliance of law.
