Employees’ ESIC contribution rate to be reduced to 1%, DA of central government employees to increase again

The Ministry of Labour has proposed that the rate of contribution for employers be 4 per cent towards ESIC.


The Central Government is considering reducing the Employees’ State Insurance Corporation (ESIC) contribution rate to one percent for employees and four per cent for employers. On the other hand, central government staff are to get yet another hike in dearness allowance (DA).

The Ministry of Labour and Employment issued a notification stating that a reduction in contribution is being considered.

Currently, according to Section 51 in the Employees’ State Insurance (Central) Rules 1950, the employee’s ESI contribution rate is 1.75 per cent of the salary,while the employer contributes 4.75 per cent of the salary/wages paid. Now, the Government is thinking of reducing this contribution.

Meanwhile, for the second time in six months, the Centre has increased the dearness allowance (DA) by three per cent over the existing rate of nine per cent, with effect from 1 January, 2019.

This hike, which has been offered in accordance with the 7th Central Pay Commission, will benefit not just 48.41 lakh central government employees but also over 62 lakh pensioners.

Dearness allownace is an allowance that helps in cost of living adjustment according to inflation, which helps cover for price rise. The DA is calculated as a fixed percentage of a person’s basic salary or pension.

DA and dearness relief (DR) will together now cost the exchequer well over 9000 crore every year.

In the period from January 2019 to February 2020 alone this recent increment will result in a cost of over 10,000 crore to the exchequer.

In March last year, the DA and DR had been hiked by two per cent. There was a revision again in August of two per cent.

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