12 July 2019
INDIA: Mandatory Social Security Contributions Cut for Employers and Employees
The mandatory combined employer/employee social security contribution is to be cut to 4% of a worker’s salary (from its current level of 6.5%) as of 1 July this year. This will see employers required to pay 3.25% of their respective employees’ average monthly salary (previously 4.75%), while workers will be mandated to make a contribution of 0.75% (previously 1.75%).
The changes come as an update to the Employees’ State Insurance (ESI) Act of 1948, which ensured the provision of health insurance for all industrial workers earning a maximum monthly salary of NR21,000 (US$301). The scheme applies to all the country’s factories and industrial establishments employing 10 workers or more, except in Maharashtra and Chandigarh where the minimum employee threshold is 20.
It is hoped that the reduced contribution rates will encourage illicit workers to join the formal economy, while prompting any currently non-compliant employers to sign-up to the ESI Act. Additionally, for those currently enrolled under the scheme, it is hoped that the reduced contribution rates will increase their take-home pay, thus improving their standard of living. It is also expected that the revised rates will reduce costs for employers and improve the ease of doing business in the country.