Explainer: Reduced Contribution Towards ESIC
Reduced contribution towards ESIC aims to reduce costs for companies and increase take-home salaries for employees. Enrollments and contributions have soared over the past three years as the scheme remains an important safety net for workers. The Central Government recently reduced the contribution under the Employee's State Insurance (ESI) Act to 4 percent from 6.5 percent. This revision is effective from June 1, 2019, and is expected to benefit 3.6 crore employees and 12.85 lakh employers.
The recent reduction in the rate of contribution does not reduce the benefits offered under the scheme. However, the burden on employers and employees is reduced. Employers' cost of labor goes down accordingly, and employees also get higher take-home salaries. The contribution from employers is reduced to 3.25 percent from 4.75 percent, while that from employees is cut to 0.75 percent from 1.75 percent. Like the EPF (Employee Provident Fund), ESIC also gets contributions from employers and employees.
Applicability and Growth of ESIC
The ESI scheme is applicable to all factories and other specified institutions with 10 or more persons employed, and the beneficiaries include employees with monthly wages not exceeding Rs 21,000. This threshold has led to increased enrollments under the scheme. In FY-19, 12.85 lakh employers and 3.6 crore employees contributed Rs 22,279 crore to the ESIC. In FY-16, 7.83 lakh employers and 2.1 crore employees contributed Rs 11,455 crore. Thus, there has been a 94% growth in contribution, whereas the employee count increased by 71%.
ESIC-2.0: Reform Agenda
ESIC-2.0, the second-generation reform agenda for the social security scheme, was announced on August 20, 2015, in the inaugural session of the 46th Indian Labour Conference by Prime Minister Narendra Modi. The idea was to expand the reach of ESIC to all districts and increase the number of healthcare facilities and to substantially improve the quality of the facilities on offer. ESIC has been offering benefits for sickness, disability, and maternity, apart from working for the betterment of facilities insured labor.
Medical Facilities and Digital Initiatives
Medical facilities are offered by ESIC through a three-pronged ecosystem consisting of the dispensaries and hospitals it manages, apart from linking with hospitals run by state governments. ESIC has already unveiled a mobile phone application for insured persons and also set up a round-the-clock call center.
Impact of Recent Announcements
"Subscription to ESIC has been a matter of compliance for many employers. However, with the recent announcements, enrollments are expected to go up further. Employers will look at this scheme willingly to ensure labor welfare instead of the old thought of adhering to the rule book," says Gopal V Kumar, an actuary and founder of Radgo & Company. The decision to reduce the rate of contribution and embrace the digital initiatives for member enrollments and scheme management is expected to bring down the costs for employers substantially. This also increases the ease of doing business.
"Improvement in the efficiency of the scheme and reduced leakages should lead to reduced costs. Increase in the enrollments has led to a larger pool of contribution. Increased demand also improves scale and drives down the cost. All these factors must have generated some surplus and that must have prompted the government to announce a cut in the contribution rate," says Kumar. As more employees get enrolled, the scheme should see an increase in the amount of money raised without increasing the rate of contribution. As ESIC is a funded scheme, it will be successful and efficient only if it keeps improving on financial and operational parameters.
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59Reduced contribution towards ESIC aims to reduce costs for companies and increase take-home salaries for employees. Enrollments and contributions have soared over the past three years as the scheme remains an important safety net for workers. The Central Government recently reduced the contribution under the Employee's State Insurance (ESI) Act to 4 percent from 6.5 percent. This revision is effective from June 1, 2019, and is expected to benefit 3.6 crore employees and 12.85 lakh employers.
The recent reduction in the rate of contribution does not reduce the benefits offered under the scheme. However, the burden on employers and employees is reduced. Employers' cost of labor goes down accordingly, and employees also get higher take-home salaries. The contribution from employers is reduced to 3.25 percent from 4.75 percent, while that from employees is cut to 0.75 percent from 1.75 percent. Like the EPF (Employee Provident Fund), ESIC also gets contributions from employers and employees.
Applicability and Growth of ESIC
The ESI scheme is applicable to all factories and other specified institutions with 10 or more persons employed, and the beneficiaries include employees with monthly wages not exceeding Rs 21,000. This threshold has led to increased enrollments under the scheme. In FY-19, 12.85 lakh employers and 3.6 crore employees contributed Rs 22,279 crore to the ESIC. In FY-16, 7.83 lakh employers and 2.1 crore employees contributed Rs 11,455 crore. Thus, there has been a 94% growth in contribution, whereas the employee count increased by 71%.
ESIC-2.0: Reform Agenda
ESIC-2.0, the second-generation reform agenda for the social security scheme, was announced on August 20, 2015, in the inaugural session of the 46th Indian Labour Conference by Prime Minister Narendra Modi. The idea was to expand the reach of ESIC to all districts and increase the number of healthcare facilities and to substantially improve the quality of the facilities on offer. ESIC has been offering benefits for sickness, disability, and maternity, apart from working for the betterment of facilities insured labor.
Medical Facilities and Digital Initiatives
Medical facilities are offered by ESIC through a three-pronged ecosystem consisting of the dispensaries and hospitals it manages, apart from linking with hospitals run by state governments. ESIC has already unveiled a mobile phone application for insured persons and also set up a round-the-clock call center.
Impact of Recent Announcements
"Subscription to ESIC has been a matter of compliance for many employers. However, with the recent announcements, enrollments are expected to go up further. Employers will look at this scheme willingly to ensure labor welfare instead of the old thought of adhering to the rule book," says Gopal V Kumar, an actuary and founder of Radgo & Company. The decision to reduce the rate of contribution and embrace the digital initiatives for member enrollments and scheme management is expected to bring down the costs for employers substantially. This also increases the ease of doing business.
"Improvement in the efficiency of the scheme and reduced leakages should lead to reduced costs. Increase in the enrollments has led to a larger pool of contribution. Increased demand also improves scale and drives down the cost. All these factors must have generated some surplus and that must have prompted the government to announce a cut in the contribution rate," says Kumar. As more employees get enrolled, the scheme should see an increase in the amount of money raised without increasing the rate of contribution. As ESIC is a funded scheme, it will be successful and efficient only if it keeps improving on financial and operational parameters.
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The reduction in ESIC contribution rates by the Central Government is a positive step that benefits both employers and employees. Employers will experience reduced labor costs, while employees will see an increase in their take-home salaries. This change does not compromise the benefits provided by the ESIC scheme. Employers' contribution has decreased to 3.25%, and employees' contribution has been lowered to 0.75%. The scheme covers sickness, disability, and maternity benefits, ensuring a safety net for workers. The increase in enrollments and the digital initiatives introduced are expected to enhance the efficiency of the scheme, reduce costs, and improve the ease of doing business. By focusing on financial and operational improvements, ESIC aims to sustain its success and efficiency in the long run.
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Official gazatte notification for revision of ESIC contribution reduction July 2019 (1).pdf