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Last Updated : Jun 24, 2019 09:52 AM IST | Source:

Explainer | Reduced contribution towards ESIC to reduce costs for companies, increase take-home salaries for employees

Enrolments and contributions have soared over the past three years as the scheme remains an important safety net for workers

Nikhil Walavalkar @nikhilmw

The Central Government recently reduced the contribution under the Employee’s State Insurance(ESI) Act to 4 per cent from 6.5 per cent. 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. But, the burden on employers and employees gets reduced. Employers’ cost of labour goes down accordingly and employees also get higher take-home salaries.

The contribution from employers is reduced to 3.25 per cent from 4.75 per cent, while that from employees is cut to 0.75 per cent from 1.75 per cent. Like the EPF(employee provident fund), ESIC also gets contributions from employers and employees.

The Employee’s State Insurance Corporation (ESIC) comes under the purview of the Ministry of Labour and Employment. This was the first act by the government to offer a social security net to the expanding labour class after independence. The idea was to extend healthcare and other benefits including compensation in case of accident or loss of employment to labourers at the lowest cost possible.


A safety net for emergencies

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 21000.

This threshold has led to increased enrolments under the scheme. In FY-19, 12.85 lakh employers and 3.6 crore employees contributed Rs 22279 crore to the ESIC. In FY-16, 7.83 lakh employers and 2.1 crore employees contributed Rs 11455 crore. Thus there has been a 94 per cent growth in contribution, whereas the employee count increased by 71 per cent.

ESIC-2.0, the second generation reform agenda for the social security scheme, was announced on August 20,, 2015 in the inaugural session of 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.

Covering sickness and disability

ESIC has been offering benefits for sickness, disability, and maternity, apart from working for the betterment of facilities insured labour. Medical facilities are offered by ESIC through a three-pronged eco-system 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 centre.

“Subscription to ESIC has been a matter of compliance for many employers. However, with the recent announcements, enrolments are expected to go up further. Employers will look at this scheme willingly to ensure labour welfare instead of the old thought of adhering to the rule book,” says Gopal V Kumar, an actuary and founder of Radgo & Company.

Making ESIC more relevant

The decision to reduce the rate of contribution and embrace the digital initiatives for member enrolments 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 enrolments 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 number of employees get enrolled, the scheme should see 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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First Published on Jun 24, 2019 08:58 am
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