The central government after consultation with Employee State Insurance Corporation (ESIC) has reduced the ESIC contribution rates to 3.25% (employer contribution) and 0.75% employee contribution, this has happened after 22 years and these reduced ESI contribution rates increase the in hand salary of the employees. These new contribution rates are effective from 1 July 2019. Here is the official gazette notification of reduced ESIC new contribution rates 2019 in PDF format.
The main aim of this decision is to bring more number of employees under ESI scheme, there are more than 3.6 crores of employees and 12.85 lakhs of employers are going to benefit with these new contribution rates.
ESIC Contribution Rates Old & New
Till now employer is contributing 4.75% and the employee is contributing 1.75% of total gross salary towards ESIC & we all know ESI is applicable to employees whose monthly gross is equal to or less than 21000 Rs.
So a total of 6.50% of employee gross salary is going to ESIC, it is really a huge amount if these rates are decreased it will reduce some burden to employee and employer. Now the total ESIC contribution has reduced to 5% and it increases the in hand salary of the employees.
Old ESIC contribution rates
- Employer contribution 4.75%
- Employee contribution 1.75%
- Total Contribution 6.50%
New ESIC contribution rates
- Employer contribution 3.25 %
- Employee contribution 0.75%
- Total contribution 4%
Use of new ESI contribution rates
If the ESIC contribution rates decrease then the in hand salary of employees will increase and for employers also it reduces some burden. The reduced ESIC contribution rates motivate employers to bring more employees in employee state insurance scheme.
Affect on ESIC benefits
No, there is no affect on ESIC benefits. All the benefits for ESIC members will remain the same and the reduction in ESIC contribution rates is only to bring more employees in ESIC scheme.
Eligibility for ESI scheme
Employees whose monthly gross salary is 21000 or below 21000 Rs are eligible for employee state insurance scheme. Here is the notification on ESI eligible salary limit.
ESIC Contribution Calculation as per Reduced Contribution Rates
For example, if an employee’s monthly gross salary is 18000 Rs then ESIC will be calculated in the following manner.
Employee contribution 0.75% = 18000 x 0.75% = 135 Rs
Employer contribution 3.25% = 18000 x 3.25% = 585 Rs
Total contribution = 720 Rs
How ESIC collects contributions
Every employer needs to make ESIC contribution payments within 15 days after the following month. If employers aren’t able to pay ESIC contribution on or before ESIC due date then they need to pay penalties.
Employers need to login to their ESIC employer portal at the esic.in website. After login, they need to enter the ESIC contributions of their employees by clicking on pay monthly contributions or they can also upload a bulk excel sheet of all the employees contributions. Once they upload the excel sheet then a challan will generate. Now employers need to make the payment of that ESIC challan.
Employees who have contributed for ESIC will be eligible for ESIC cash benefits in ESIC beneficial period, here is the table of ESIC contribution period and cash benefit period.