How govt aims to boost formal jobs with Rs 1 lakh cr ELI scheme

India Today

a day ago

India has 85 per cent of its workforce in the informal sector—one of the highest globally—meaning that this large labour segment is outside any social security net. Over the next 20-30 years, the country will lose its leverage of a young demographic. When that happens, this workforce, which lacks social security, risks becoming a huge burden for the government and other stakeholders.In this context, the government has come up with an ambitious Employment Linked Incentive (ELI) scheme, first announced in the Union Budget 2024-25, with a singular focus: formalisation by offering Employees' Provident Fund (EPF) support.advertisementUnlike many job and skilling schemes in the past, the ELI scheme has a clearly defined target. Of the total outlay of Rs 2 lakh crore, the cabinet has cleared Rs 99,446 crore, aiming to create 35 million formal jobs over two years. Out of these, 19.2 million employees will be first-timers entering the workforce.'The scheme is not only creating an opportunity but laying out the roadmap for formal job creation,' says Suchita Dutta, executive director of the Indian Staffing Federation (ISF), an industry body representing manpower outsourcing.
The ELI scheme encourages job freshers to join the formal workforce while incentivising employers through PF support to increase formal job creation. Here's how:For new employees: Employees with salaries up to Rs 1 lakh will get a month's EPF wage (around 24 per cent of overall wage), up to Rs 15,000, in two installments. The first instalment will be paid after six months of employment and the second instalment will be payable after a year.The new hires will receive the payment from the government through Direct Benefit Transfer (DBT) into their Aadhaar-seeded bank accounts, encouraging employees to now look for companies offering formal jobs.For employers: The government will pay employers up to Rs 3,000 per month for every new hire, with a salary up to Rs 1 lakh, for two years—reducing the cost of new hires for companies and incentivising them to create formal jobs. One of the criteria is that the employee should have worked in the organisation for at least six months.To boost manufacturing, the sector gets an additional incentive—companies will receive this benefit for four years.This will apply to companies that hire at least two new employees (for employers with fewer than 50 employees) or five additional employees (for employers with 50 or more employees), and retain them for at least six months.
Dutta of ISF puts this in perspective. The common practice today is that employees—especially those with lower compensation packages—prefer to have more in-hand salary and opt to work as consultants, daily wagers or gig workers to increase their take-home pay.Employers too shy away from hiring permanent employees on their payrolls as social security benefits constitute 30-40 per cent of the overall compensation package.The EPF contribution amounts to 24 per cent of the monthly salary—12 per cent each by the employee and the employer. In addition, employers contribute 3.85 per cent towards the Employees' State Insurance Corporation (ESIC). Some states also levy a Labour Welfare Fund (LWF) and Professional Tax.Dutta adds that the ELI scheme will be critical as permanent jobs have been reducing over the years and will continue to decline as the business landscape becomes more volatile due to trade wars and advancements in AI.'The government has identified that paying PF is a burden for employers, which is resulting in informal employment. Hence, with this scheme, it is incentivising companies to hire employees on their payrolls by providing a two-year PF support for new hires—which extends to four years for manufacturing firms,' says Kartik Narayan, CEO of Staffing at TeamLease Services.Narayan highlights that this scheme is different as it has a much larger scope and scale than earlier employment schemes, including the Pradhan Mantri Kaushal Vikas Yojana and Pradhan Mantri Rojgar Protsahan Yojana.advertisementAlso, ELI is a very targeted scheme towards first-time employees and employers creating formal jobs, so much so that the government has even outlined a specific target for new job creation, which wasn't the case earlier.Subscribe to India Today Magazine- Ends