The government lowered the contribution under the Employees' State Insurance (ESI) from 6.5 percent to 4 percent on Thursday evening. The reduced ESI contribution is expected to increase the take-home salary of employees and decline the employer's financial burden.

The decision will benefit an estimated 36 million workers and 1.28 million employers that are covered under the insurance scheme. The reduced rates will be effective from 1 July 2019.

In a statement, the Ministry of Labour said that the cut "includes a reduction of 1.5% in employers' contribution to 3.25% from 4.75% and 1% reduction in employees' contribution to 0.75% from 1.75%."

"The reduced rate of contribution will bring about a substantial relief to workers and will bring more and more workforce into the formal sector," it further added.

The ESI Act 1948 under the labour ministry aims to cover employees that make a salary of up to Rs 21,000 to increase the number of people in the country's formal workforce. In December, the salary/wage ceiling for the scheme was increased from Rs 15,000 to Rs 21,000. This is the first rate reduction in 22 years.

Under the ESI, employees are covered for medical, cash, maternity, disability and dependent benefits. The scheme is administered by Employees' State Insurance Corporation and is funded with contributions made by the employee as well as employer.

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