Come July 1, around four crore industrial and other workers earning up to `21,000 a month each will have a higher take-home salary, as the government has decided to lower mandatory contributions under the Employees’ State Insurance Scheme (ESIC) to 4% of the monthly wages.

At present, the rate of contribution is fixed at 6.5% of the wages, with employers’ share being 4.75% and employees’ share 1.75%. The prevalent rate is in vogue since January, 1997. From July 1, however, an employee will pay just 0.75% of the wage as constribution to the ESIC, while the employer will contribute 4% of the wage.

The ESI scheme applies to factories employing 10 or more persons and establishments employing 10/20 or more persons (depending on the state) in notified areas. Aimed at widening the social security net, the government had, with effect from, January, 2017 enhanced the threshold limit of mandatory coverage under the ESI scheme to `21,000 per month from `15,000 earlier.

“This (the reduced rate) would benefit 3.6 crore employees and 12.85 lakh employers. The reduced rate of contribution will bring about a substantial relief to workers and it will facilitate further enrollment of workers under the ESI scheme and bring more and more workforce into the formal sector,” the labour ministry said in a note.

The ministry also hopes that a reduction in the share of contribution of employers will reduce the financial liability of the establishments, leading to improved viability of these establishments and enhanced ease of doing business.

The Employees’ State Insurance Act 1948 (the ESI Act) provides for medical, cash, maternity, disability and dependent benefits to the insured persons under the Act. Benefits provided under the ESI Act are funded by the contributions made by the employers and the employees.

Under the ESI scheme, full medical care is provided to an insured person and her family members from the day she enters insurable employment. There is no ceiling on expenditure on the treatment of an insured person or his family member.

ESI scheme being contributory in nature, all the employees in the factories or establishments to which the Act applies shall be insured in a manner provided by the Act.

An employer is liable to pay his contribution in respect of every employee and deduct employees contribution from wages bill and shall pay these contributions at the above specified rates to the ESIC within 15 days of the last day of the Calendar month in which the contributions fall due. There are two contribution periods each of six months’ duration.