SKP Business Alert
Volume 8 Issue 10 | 30 December 2016

Amendment to Employees’ State Insurance (Central) Rules, 1950

The Ministry of Labour and Employment has amended the applicability of Employees’ State Insurance (Central) Rules, 1950, vide notification dated 22 December 2016. According to the amendment, the minimum wage limit for the applicability of the Employees’ State Insurance Act, 1948 (‘Act’), has been increased to INR 21,000 from the existing limit of INR 15,000. Employees earning wages up to INR 21,000 will now be covered under the definition of an Employee under the Act.

The said amendment will be enforced from 1 January 2017.
SKP's comments
With this amendment, factories and establishments with 10 or more employees will be required to make monthly contribution to the Employee State Insurance Corporation (ESIC) scheme for employees earning wages up to INR 21,000. Thus, as of 1 January 2017, the employees with gross wages of up to INR 21,000 shall be covered under the Employees’ State Insurance Act, 1948. Accordingly, the employee’s net pay per month will get reduced to the extent of the ESIC contribution.
Depending on the company’s policies, the cost of the company is likely to increase on two accounts:
  • Additional cost for employers due to the increase in the threshold limit, as more employees will be eligible to be covered under the ESIC scheme.
  • Companies may have to incur additional salary cost to take care of the decrease in the salary of the employees who are now covered under the ESIC scheme so that their net pay per month remains unchanged.

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