In line with its emphasis on easing costs for compliance with employment laws, the Central Government has come out with an important notification to reduce the administrative charges payable by employers in relation to social security contributions.

In this Ergo, we analyse the impact of this notification. First, however, we take the opportunity to remind our readers of the fast-approaching deadline for another scheme floated earlier.

A. DEADLINE TO REGISTER UNDER ‘SCHEME TO PROMOTE REGISTRATION OF EMPLOYERS/ EMPLOYEES’ FAST APPROACHING

Background

The Employees’ State Insurance Corporation (ESIC) launched the ‘Scheme to Promote Registration of Employers/Employees’ (SPREE) on 20 December 2016 as a one-time drive to extend the social security benefits under the Employees’ State Insurance Scheme (ESI Scheme) to all employees eligible under the Employees’ State Insurance Act, 1948 (ESI Act), who had so far been left out of the coverage of ESI Scheme.

Salient features of the Scheme

The salient features of SPREE are as follows:

  • the Scheme is open from 20 December 2016 - 31 March 2017 (Period);
  • employers registering during the Period will be treated as covered from the date of registration or as declared by them;
  • newly registered employees shall be treated as covered from the date of their registration; and
  • registration under SPREE will not have any bearing on actions taken/ required to be taken under the ESI Act, if any, prior to 20 December 2016.

B. ADMINISTRATIVE CHARGES PAYABLE TO EMPLOYEES PROVIDENT FUND ORGANIZATRION REDUCED

Background

The Government of India vide gazette notification dated 15 March 2017 (Notification) has reduced the administrative charges payable by an employer to the Employees Provident Fund Organization (EPFO).

Salient features of the Notification

Prior to the Notification, an employer was required to pay administrative charges at the rate of 0.85% of the employees’ pay. This has now been reduced to 0.65% of the employees’ pay. This is subject to a minimum amount of INR 75 (Indian Rupees Seventy five) per month for every non-contributory establishment (i.e. having no contributory members) and a minimum amount of INR 500 (Indian Rupees Five hundred) per month for other establishments. The new administrative charges will be effective from 1 April 2017.

The Notification expressly provides that the administrative charges payable in respect of the period up to and inclusive of 31 March 2017 will be as per the old notification. As per media reports, the changes will result in savings of upto INR 1,000 crore (Rupees One thousand crore) annually for India Inc., which makes this a welcome measure.

C. ADMINISTRATIVE CHARGES PAYABLE ON EMPLOYEES DEPOSIT-LINKED INSURANCE SCHEME EXTINGUISHED

Background

The Notification has also phased out the requirement of employers to pay administrative charges in compliance with Employees Deposit-Linked Insurance Scheme, 1976.

Salient features of the Notification

Prior to the Notification, employers were required to pay administrative charges at the rate of 0.01% of the employees’ pay. These charges have now been extinguished. Accordingly, with effect from 1 April 2017, no administrative charges will be payable by an employer under the Employees Deposit-Linked Insurance Scheme.

The Notification expressly provides that the administrative charges payable in respect of the period up to and inclusive of 31 March 2017 will be as per the old notification.

Khaitan Comment

SPREE is an efficient mechanism to register under the ESI Act. ESIC is making special efforts to apprise stakeholders in making the most of SPREE and employers must take full benefit of this one-time-opportunity in case their employees are eligible under ESI Act but have not registered themselves with ESIC till date.

Further, the Notification is set to bring down the employment compliance costs for employers across India to the extent of administrative charges in relation to social security contributions.