Employment Linked Incentive Scheme: A Push for Formal Job Creation

Context

To address unemployment and promote formal sector job creation, the Union Cabinet recently approved the Employment Linked Incentive (ELI) Scheme.
This scheme aims to support employment generation, improve employability, and extend social security, particularly for first-time employees and sectors like manufacturing.
It is a part of the government’s broader strategy to formalize the labour market and enhance ease of doing business.

Administering Ministry

• Implemented by the Ministry of Labour & Employment.

Objectives

• Enhance job creation in formal sectors.

• Improve employability of workers.

• Provide social security coverage through EPF.

Focus Areas

• Emphasis on the manufacturing sector.

• Special incentives for first-time employees and job-creating employers.

Target and Financial Outlay

• Create over 3.5 crore jobs in a span of 2 years.

• Allocated budget: ₹1 lakh crore.

Key Features of the Scheme

The scheme is divided into two parts:

Part A – Incentives for First-Time Employees

• Incentive: Equivalent to 1-month EPF wage (up to ₹15,000), in 2 instalments.

• Eligibility:

  • First-time employees registered with EPFO.

  • Monthly salary up to ₹1 lakh.

• Estimated beneficiaries: Around 1.92 crore new employees.

• Payment mode: Via Direct Benefit Transfer (DBT) using Aadhaar Bridge Payment System (ABPS).

Part B – Incentives for Employers

• Coverage: Additional employment in all sectors, with a focus on manufacturing.

• Eligibility:

  • Establishments registered with EPFO.

  • Must hire at least:

    • 2 additional employees (if total staff < 50), or

    • 5 additional employees (if total staff ≥ 50).

  • Sustained employment must be for at least 6 months.

• Incentive:

  • Up to ₹3,000 per month per new employee for 2 years.

  • For manufacturing sector: Extended to 3rd and 4th years.

• Payment mode: Directly into PAN-linked accounts of employers.

About EPFO and EPF

• Employees’ Provident Fund Organisation (EPFO):

  • A non-constitutional body under the Ministry of Labour & Employment.

  • Established in 1951 to promote retirement savings.

  • Covers both Indian and international employees in India.

• EPF Contributions:

  • Both employer and employee contribute 12% of the basic salary + dearness allowance.

Incentive Payment Mechanism

• Part A (Employees): Payments through DBT using ABPS.

• Part B (Employers): Payments to PAN-linked accounts.

Significance of the Scheme

• Will formalize the Indian workforce.

• Extends social security to crores of young employees.

• Encourages sustained employment and boosts hiring in key economic sectors.

• Helps in meeting India’s demographic dividend by enhancing productive employment.