The Central Government has recently reduced the contribution rates of employees' state insurance (ESI) from 4.75% to 3.25% (employer contribution), and 1.75% to 0.75% (employee contribution). The reduced rates apply from 1 July 2019 and contributions based on these revised rates must be remitted by 15 August 2019.

Background

The Employees' State Insurance Act, 1948 (ESI Act) is an important social security legislation which provides for medical and cash benefits to employees (or their dependents) in case of sickness, maternity and employment injuries. While the benefits are administered by the Government-operated Employees' State Insurance Corporation (ESIC), the funds for providing the benefits are derived from the monthly contributions made by covered employers and eligible employees.

Applicability of the ESI Act

In the first instance, the ESI Act applies to all factories in the country. However, in a majority of Indian States, the applicability of the statute has also been extended to commercial establishments, either through local shops and commercial establishments laws or through separate government notifications. Further, while in some States (such as Karnataka, Delhi, Telangana and Haryana) the ESI Act applies to establishments with 10 or more employees, in some others (such as Maharashtra, Tamil Nadu and Uttar Pradesh) the threshold for applicability is 20 or more employees. The 'employee' headcount would include contract staff.

Employees earning monthly wages of INR 21,000 or less are eligible to receive benefits under the ESI Act.

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