The Employee Linked Incentive (ELI) scheme introduced in the Union Budget 2024, is a government initiative designed to boost employment by providing financial incentives to employees entering the formal sector and employers that generate new jobs. Despite India’s significant demographic advantage with a young population, job creation has lagged. As of 2023, over 47% of the working-age population either faces unemployment, underemployment, or works in low-skill jobs. It aims to create over 2 crore jobs in the country in a period of 2 years. The scheme includes three key components. The 3 Employment Linked Incentive (ELI) Schemes are as follows:
Scheme A - First-time employment
Scheme B - Job creation in manufacturing
Scheme C - Support to employers
The ELI scheme directly benefits the first time employees with a wage subsidy under the Scheme A. Further, the other 02 schemes indirectly benefit the employees as the scheme incentivizes the employer for new hiring and promotes investments.
Scheme A: Benefits first time Employees
Under this scheme, first-time employees will have a learning curve before becoming fully productive. The subsidy provided under this scheme assists employees and boosts the hiring of first time employees by the employers. Features:
A one-month wage subsidy, capped at ₹15,000, is provided to newly hired employees entering the workforce.
The scheme applies to all sectors and is designed to support both employees and employers during the initial learning curve before employees become fully productive.
It covers individuals earning less than ₹1 lakh per month who are newly enrolled in the EPFO. The subsidy is paid in three installments, with the second installment contingent on the employee completing a mandatory online Financial Literacy course.
If employment ends within 12 months, the employer must refund the subsidy.
The scheme is expected to benefit approximately one crore people annually and will be in effect for two years.
Scheme B: Job creation in Manufacturing Sector
This scheme is aimed at substantial hiring of first-time employees in the manufacturing sector. The incentive will be paid partly to the employee and partly to the employer for four years. Features:
The scheme targets manufacturing sector employers with a three-year EPFO contribution history, requiring them to hire either 50 new employees or 25% of their workforce, whichever is lower, to qualify for incentives.
This is applicable for hiring of first time employees in the manufacturing sector.
The incentive under the scheme will be paid over four years, shared equally between the employee and employer, as follows: 24% of wages (restricted to INR 25,000) in the first two years, 16% in the third year, and 8% in the fourth year. Employers must maintain the increased employment level throughout the period; otherwise, the subsidy will stop.
Eligible employees must be directly employed by the entity and have salaries up to ₹1 lakh per month, with incentives for those earning above ₹25,000 calculated at ₹25,000.
If employment ends within 12 months, the employer must refund the subsidy.
This benefit is in addition to Part-A of the scheme, which will last for two years.
If employees do not seed their Aadhaar with their bank account, they may face difficulties in receiving benefits under the schemes mentioned above. Aadhaar seeding is often a prerequisite for direct benefit transfers (DBT) in government schemes, as it helps ensure the correct identification and smooth transfer of funds. Therefore, employees who do not link their Aadhaar to their bank account may not be eligible to receive the scheme's financial incentives or subsidies until they complete the seeding process. To ensure that the maximum number of employers and employees benefit from the ELI Scheme, the Ministry of Labour & Employment in a press-release dated November 21, 2024 has directed EPFO to work in a campaign mode with employers to complete the process of UAN activation through Aadhaar-based OTP for all their employees joining in the current financial year by 30th November 2024, starting with the latest joinees.
Scheme C: Support to Employers
The third scheme under the employment linked incentive scheme is the support to employers scheme. This employer-focused scheme will cover every additional employment within Rs.1 lakh salary per month in all sectors. Features:
The scheme incentivizes employers who increase their workforce above the baseline (the previous year's number of EPFO employees) by at least two employees for companies with fewer than 50 employees, or five employees for companies with 50 or more employees, and maintain this higher level.
It applies to employees earning up to ₹1 lakh per month, and unlike other parts of the scheme, these new employees do not need to be first-time EPFO entrants.
For two years, the government will reimburse up to ₹3,000 per month of the EPFO employer contribution for the additional employees hired in the previous year.
If the employer creates more than 1,000 jobs, the reimbursement will be done quarterly, and the subsidy will continue into the third and fourth years, following the same benefit scale as in Part-B.
This subsidy is not applicable for employees covered under Part-B but will be in addition to the benefits of Part-A.
The scheme is valid for two years..
Additionally, the ELI Scheme is part of a broader centrally sponsored initiative under the Prime Minister’s package, aimed at skilling 20 lakh young individuals over the next five years to enhance productivity. It includes internships for 1 crore youth over five years in top companies, offering hands-on experience and stipends to enhance employability. The scheme also focuses on empowering women by establishing hostels for working women and launching women-specific skilling programs, promoting gender equality, and increasing women’s workforce participation. With a primary goal of reducing unemployment, the scheme encourages private sector participation in job creation, particularly in sectors with high employment potential.
The scheme also supports skill development through compulsory financial literacy courses, enhancing employability. By encouraging stable employment and offering real-world exposure through internships, it bridges the gap between academic knowledge and industry needs, ultimately empowering employees with practical skills for long-term career growth.