ESI Rate Cut

Published: June 19, 2019

The government has reduced the rate of contribution for medical care under the ESI (Employees State Insurance) Act to 4% from 6.5%.

How does ESI work?

The medical services being provided by the ESI Scheme in the respective states and Union Territories are regulated by the ESI Corporation. The scheme is operated by the funds received from contributions made by the employers and the employees.

The ESI Act is applicable to the enterprises where 10 or more persons are employed and employees with wages up to Rs 21,000 a month are entitled to the health insurance cover and other benefits under the ESI Act.

ESI provides for direct cash compensation for sickness, disablement maternity, death, occupational disease or death due to employment injury etc to organised sector employees and their dependents.

Impact of the Rate Revision

  • The rate cut to 4% comprises of the employers contribution of 3.25% of the employees wages (reduced from 4.75%), and the employees contribution of 0.75% (reduced from 1.75%).
  • The rate cut is expected to benefit around 3.6 crore employees and 12.85 lakh employers. The reduced rate of contribution is expected to bring about substantial relief to workers and facilitate further enrolment of workers under the ESI scheme together with bringing more and more workforce into the formal sector.
  • The reduction in the share of employers contribution would reduce the financial liability of the establishments, thereby improving the viability of the establishments leading to enhanced Ease of Doing Business.

The All India Trade Union Congress (AITUC) criticising the rate cut called for providing more benefits under the health insurance scheme and restoring the practice of inspections to ensure compliance.

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