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Employees’ State Insurance Act

Published: 27th Jun, 2019

Recently, government has reduced the salary contribution of industrial workers who are eligible for healthcare benefits under the Employees’ State Insurance Act (ESI Act) from 6.5 % to 4%.


Recently, government has reduced the salary contribution of industrial workers who are eligible for healthcare benefits under the Employees’ State Insurance Act (ESI Act) from 6.5 % to 4%.


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  • With this reduction, the employers’ contribution to the ESI Act has been reduced from 4.75 % to 3.25 % and the employees’ contribution has been reduced to 0.75 % from 1.75 %.
  • The move is aimed at formalising India’s informal workforce and expanding social security coverage. This will benefit 3.6 crore employees and 12.85 lakh employers.
  • This decision, which lowers the cost of hiring for employers, should be seen in conjunction with recent initiatives such as the Pradhan Mantri Rojgar Protsahan Yojna (PMRPY) that aim to boost the creation of formal jobs by lowering the costs associated with formalisation.

Employees’ State Insurance (ESI)

  • The ESI Act 1948 was the first major legislation on social security for workers in India. It provides for health-related events, such as sickness, maternity and temporary or permanent disability.
  • It also covers occupational disease or death due to employment injury, resulting in loss of wages or earning capacity — either total or partial.
  • Under the Act, employers and employees contribute their share, respectively, with the rate of contribution being decided through the Ministry of Labour and Employment.
  • It applies to premises where 10 or more persons are employed.
  • Employees with wages up to Rs 21,000 a month (earlier Rs 15,000 per month) are entitled to the health insurance cover and other benefits under the ESI Act.
  • ESI Corporation (ESIC), which is an autonomous body, regulates medical services being provided by the ESI Scheme in the respective states and Union Territories.

How wide is its coverage?

  • As part of a second-generation reforms, ESIC-2.0, the ESI Corporation decided to implement the ESI scheme all over the country.
  • The efforts resulted in a rise in the number of registered employees (insured persons) and employers.

Benefits of reduction

  • Impact on Employers: Reduction in the share of contribution of employers will reduce the financial liability of the establishments leading to improved viability of these establishments. This will enhance Ease of Doing Business.
  • It is also expected that reduction in the rate of ESI contribution will improve compliance of law.
  • Impact on Employees: The reduced rate of contribution is expected to provide substantial relief to employees. It will bring in many more employees within the ambit of the ESI Scheme and result in an increased workforce joining the formal sector.
  • Further, the reduced rate of contribution will in turn lead to an increase in cash in hand of the eligible employees, thereby strengthening their financial position.

Why are some trade unions criticising the revision of rates?

  • Trade unions such as the Centre of Indian Trade Unions (CITU) have described it is a unilateral decision and not in line with a decision taken by the Tripartite Governing Council of the ESI. CITU said that the reduction in ESI contribution is mainly to benefit the employers/business class.
  • The All India Trade Union Congress (AITUC) too has issued a statement, saying that instead of reducing the rate of contribution, more benefits should be planned under the health insurance scheme and a practice of inspections should be restored to ensure compliance.

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