Introduction:
The Employee Linked Incentive (ELI) Scheme is a major initiative launched by the Union Government in the Union Budget 2024-25, to address the country’s growing unemployment challenges. India is currently facing high levels of unemployment among the youth, underemployment, and a mismatch between the skills and industry demand. The ELI scheme is proposed to stimulate the private sector to participate in job creation and workforce development. The scheme seeks to incentivize and motivate employers to hire more youth, especially freshers while encouraging skill development and enhancing job retention.
The ELI Scheme is a package of 5 schemes to create more job opportunities and improve the livelihood of people across the country. The scheme envisages providing employment, skilling, and other opportunities for 4.1 crore youth over five years with a total central outlay of ₹ 2 lakh crore. Out of this, 1.07 crore is allocated to implement Plan A, B, and C, ₹63,000 crore for Plan D to provide an Internship programme for skilling 1 crore youth in 5 years, and ₹30,000 crore for Plan E for upgrading of Industrial Training Institutes (ITI’s) across the country.
The package highlights the government’s strong commitment to tackling unemployment and boosting economic recovery, especially after the challenges posed by COVID – 19 pandemic.
The Objectives:
The ELI Scheme hopes to address the country’s growing unemployment by incentivizing the private sector for job creation, skill development, and retention.
The main objectives are:
- Promote the employment of youth: The scheme primarily aims to reduce unemployment among the youth by encouraging organizations to recruit youngsters especially those joining the workforce for the first time.
- Encourage job retention: The ELI scheme has features to encourage job retention by offering incentives to employers who maintain higher workforce levels over a period of time, especially those who recruit beyond a specified threshold.
- Encourage Skill Development: Skilling has been the Government’s objective, and this initiative aligns with this aim. This is achieved by encouraging skill development among the youth, by motivating employers to invest in training and skill development of their workforce.
- Enhance Formal Employment: Historically, industries have depended on informal labour. This scheme aims to formalize employment by incentivizing employers who transition workers into the formal economy by providing social security such as Provident Fund (PF) coverage.
- Boost employment in the Manufacturing Sector: The Scheme has features that target the Manufacturing Industry to boost job opportunities by promoting the recruitment of first-time-employees.
- Reduce Economic Disparity: the Scheme aims at reducing economic disparity and improve social mobility by prioritizing on job creation and skill enhancement for youth especially those from the underprivileged backgrounds.
- Assist Employers in recruitment: The programme aims to lower the expenses of employers and motivate them to increase their employment levels by providing financial assistance such as reimbursing employers for their PF contributions towards new hires.
The Schemes
The Employment Linked Incentive Schemes encompass 5 programs aimed at employment generation, retention, workforce formalization, skill development, and enhancing full compliance with all statutory rules and regulations.
The total outlay for the entire scheme is ₹2 lakh crores for 5 years. Out of this, ₹1.07 lakh crore is allocated for Scheme A, B, and C to generate employment for 3.1 crore new employees, ₹ 63,000 crore is allocated for Internship Programme for skilling 1 crore youth in 5 years, and ₹30,000 crore for upgrading of Industrial Training Institutes (ITI’s)
Scheme A: First-time Employees Support Scheme
This scheme is designed for youth who are entering the formal workforce for the very first time. All newly joined employees in the formal sector will receive one month’s salary up to ₹15,000 to be disbursed through direct transfer in 3 installments. The first-time employment scheme is expected to benefit around 210 lakh youth over 2 years. The Central outlay for the scheme is ₹23,000 crores. Enrolment is open for 2 years and the expenditure coverage extends to 3 years. The subsidy paid under this scheme supports employees and boosts the hiring of first-time employees by employers.
The salient features of the scheme are briefed below:
- Applicable to all newly joined employees in the formal sector.
- Applicable to newly joined employees enrolled in EPFO and drawing a wage or salary of less than ₹ 1 lakh per month.
- Eligible employees will receive a subsidy of up to ₹ 15,000 directly in 3 installments.
- The eligible employee has to mandatorily undergo a financial literacy course to receive the second installment.
- The employer has to refund the subsidy to the employee if the employment ends within 12 months of recruitment.
- The scheme will be applicable for 2 years after enrolment with EPFO.
Scheme B: Incentives for Job creation in the Manufacturing Sector
This scheme is designed to enhance employment in the manufacturing sector. The scheme rewards both employers and first-time employees who contribute towards EPFO. The incentive will be paid at a specified scale to both the employee and employer directly based on the EPFO contributions made in the first 4 years of employment. The incentives will be paid partly to both the employees and employers for 4 years as detailed below:
Year | Percentage |
First year | 24% shared equally between employee and employer |
Second year | 24% shared equally between employee and employer |
Third year | 16% shared equally between employee and employer |
Fourth year | 8% shared equally between employee and employer |
This scheme is aimed at incentivizing employment in the manufacturing sector and is expected to benefit 30 lakh youth and their employers. ₹52,000 crore has been earmarked for this scheme. The program has a 2 year enrolment plan with the expenditure phase spanning 6 years. This will allow sustained support that will boost long term employment in the manufacturing sector.
The salient features of the scheme are briefed below:
- The scheme applies to first-time employees in the manufacturing sector.
- All corporate and non-corporate employers who have a 3-year track record with EPFO contributions will be eligible.
- Employees who contribute towards EPFO and who earn a wage or salary of up to ₹1 lakh per month will be eligible for this scheme.
- The employees must be directly employed by the organization that pays the salary.
- Where the salary of the employees exceeds ₹25,000 per month, the incentive will be calculated at the capped amount of ₹25,000 per month.
- If the employment ends within 12 months of recruitment, then the employer will refund the subsidy to the employee.
- The scheme requires the employer with a 3-year EPFO contribution to hire either 50 new employees or 25% of their workforce, whichever is lower to qualify for the incentive.
- Employers should maintain the enhanced level of employment throughout, failing which they will not receive the subsidy.
- The incentive will be paid over 4 years, shared equally between the employee and the employer as per the table given above.
- The scheme will apply to an employee for 2 years after enrolment with EPFO.
Scheme C: Support to Employers for EPFO contributions
The third scheme under the Employment Linked Incentive Scheme is to support employers who contribute towards EPFO. This is a fully employer focussed scheme that covers every additional employment within a salary of ₹1 lakh per month within all sectors.
The salient features of the scheme are briefed below:
- The scheme incentivizes employers who increase their workforce above the baseline (the previous year’s number of EPFO employees) by at least 2 employees for companies with less than 50 employees or 5 employees for companies with 50 or more employees and maintain this level.
- The scheme applies to employees earning up to ₹1 lakh per month.
- New employees need not be newly enrolled with EPFO.
- The EPFO will reimburse contributions paid by the applicable employer for the additional employees hired in the previous year up to ₹3,000 per month for 2 years.
- When the employer creates more than 1000 jobs, reimbursement will be done for every quarter.
- The subsidy will continue for the 3rd and 4th years on the same scale as employers benefit provided under job creation for manufacturing sector.
- The subsidy provided under this scheme is in addition to the subsidy provided under the first-time employment scheme.
- The scheme is applicable for 2 years after joining employment.
The Central outlay for this scheme is ₹32,000 crores and is expected to benefit 50 lakh youth. The program has 2 year enrolment duration and the expenditure duration is for 6 years.
Scheme D: Internship Scheme with Top Companies
The Internship Programme envisages skilling 1 crore youth aged between 21 to 24 years over 5 years in top 500 companies. The total outlay for the scheme is ₹63,000 crores.
The salient features of the scheme are briefed below:
- The duration of the Internship is 12 months with a monthly allowance of ₹5,000 and a one-time assistance of ₹6,000.
- Unemployed youth in the age group of 21-24 are eligible.
- The government will contribute significantly to the allowance costs, while the administrative and training expenses will be borne by the Company through CSR funding.
- Priority will be given to candidates with lower employability metrics.
- Actual skill training is mandatory with a focus on hands-on-work over classroom learning.
Scheme E: Skilling programme and upgradation of ITI’s
This is a scheme to skill youth with state and industry collaboration. This centrally sponsored scheme has a total outlay of ₹60,000 crores, where the Central Government spends ₹30,000 crores, the State Government spends ₹20,000 crores and the Industry ₹10,000 crores (this includes CSR funding).
The salient features of the scheme are briefed below:
- The objective is to skill 20 lakh youth so that industry standards can be met and employability enhanced.
- The programme envisages the upgradation and revamping of 1000 Industrial Training Institutes (ITIs), in a “hub and spoke” model with 200 hubs and 800 spokes nationwide with the cooperation of the industry.
- A complete Re-design and review of existing courses.
- Introduction of New courses with 1 and 2 year courses offered in all the 1000 ITI’s
- Offering specialized short-term courses in Hub ITI’s.
Key Takeaways of the Employment Linked Incentive Schemes
The ELI Scheme offers several key benefits and they are:
- Promoting Job Creation: the ELI scheme acts as stimulus to companies to hire more employees by offering incentives tied to EPFO Contributions. This will stimulate industrial growth and promote employment in various sectors.
- Supports fresh graduates and new entrants: The first-timers scheme helps to integrate fresh graduates and new entrants into the formal workplace. This scheme reduces the financial strain and ensures a smooth entry into the job market by providing a stable income at the start of a career.
- Strengthens financial security for employees: By incentivizing formal employment through EPFO contributions, the scheme ensures access to retirement benefits thus enhancing the long-term financial security of employees.
- Encourages workforce expansion for employe₹ The job creation in the Manufacturing sector scheme encourages employers to expand their workforce by linking incentives to EPFO contributions. This reduces the financial barrier for employers to hire more workers, helping the companies to meet the increasing demand and grow in the process.
- Reduces the financial burden of the employe₹ The Support to Employers scheme reimburses a portion of the EPFO contributions for newly hired employees. This specifically helps Small and Medium-sized Enterprises (SMEs) to reduce the cost of hiring, making it more viable for SMEs to expand their workforce.
- Boosts Economic growth: By creating more job opportunities and incentivizing businesses to hire, the ELI scheme ensures that the growth driven by other manufacturing incentives such as the PLI scheme, translates into actual long-term employment gains.
- Encourages the formalization of the workforce: Incentivizing the formal sector employment, this helps to transition workers from the informal sector to the formal sector, providing greater stability and access to social security benefits.
Conclusion
The Employment Linked Incentive (ELI) Scheme is a strategic approach by the Central Government to address the unemployment problem in the country and to drive economic growth. The incentives targeted at both employers and employees aim to create a more inclusive and dynamic job market. The initiatives under the ELI scheme will not only support workforce expansion and formalization but will also significantly enhance the financial relief to employers, especially SMEs, thus making it easier for them to grow and hire.
GetifyHR, with its vast experience in Payroll processing and HR Management, assures all stakeholders of our continued support in helping them to make use of these schemes to foster growth and job creation, and to ensure a thriving and sustainable business in the long term.