Employees State Insurance Act has been passed to provide certain benefits to employees in case of sickness, maternity and employment injury and to make provisions for related matters. As the name suggests, it is basically an ‘insurance’ scheme i.e. employee gets benefits if he is sick or disabled.
Employees State Insurance provides cash and medical benefits to employees (and their families) who are earning a gross of Rs. 21,000 or less.
Employees State Insurance (E.S.I.) Scheme being contributory in nature, all the employees in the factories or establishments to which the Act applies shall be insured in a manner provided by the Act. The contribution payable to the Employees State Insurance Corporation (ESIC) in respect of an employee shall comprise of employer’s contribution and employee’s contribution at a specified rate. The rates are revised from time to time.
Current Contribution Rate for ESI:
Employee Contribution = 1.75% of the wages paid/payable in respect of the employees in every wage period.
Employer’s Contribution = 4.75% of the wages paid/payable in respect of the employees in every wage period.
Employees in receipt of a daily average wage upto Rs.100/- are exempted from payment of contribution. Employers will however contribute their own share in respect of these employees.
For ESI calculation, the Gross salary comprises of all the monthly payable amounts such as Basic, Dearness Allowance, City Compensatory Allowance, HRA, Incentives, Attendance Bonus, Meal Allowance, etc. The Gross salary, however, does not include annual bonus, retrenchment compensation, encashment of leave and gratuity.
Example of an ESI calculation:
Gross salary of employee = Rs 18,000/month
Employee ESI Contribution (@ 1.75%) = 1.75% of 18,000 = Rs 315
Employer ESI Contribution (@ 4.75%) = 4.75% of 18,000 = Rs 855
Total ESI Contribution = Rs 315 + Rs 855 = Rs 1170
Collection of Contribution:
An employer is liable to pay his contribution in respect of every employee and deduct employees contribution from wages bill and shall pay these contributions at the above specified rates to the Corporation within 21 days of the last day of the Calendar month in which the contributions fall due. The Corporation has authorized designated branches of the State Bank of India and some other banks to receive the payments on its behalf.
Contribution Period and Benefit Period:
There are two contribution periods each of six months duration and two corresponding benefit periods also of six months duration as under.
- For contribution period ‘1st April to 30th Sept’, the benefit period is ‘1st Jan of the following year to 30th June’
- For contribution period ‘1st Oct to 31st March of the year following’, the benefit period is ‘1st July to 31st December’
An employee can only avail ESI benefits after 9 months of joining employment and contributing to ESI. This is because the ‘Benefit Period’ starts 3 months after the end of ‘Contribution Period’, and any medical or maternity benefits can be availed during the benefit period only.
IMPORTANT: In case the salary goes above Rs 21,000 per month during the contribution period, the ESI would be calculated on the higher salary. For example, if the salary of an employee is raised to Rs 30,000 per month during the ESI contribution period, then the ESI would be calculated on Rs 30,000 instead of Rs 21,000.
Applicability of ESI:
Under Section 2(12) the Act is applicable to non-seasonal factories employing 10 or more persons.
Under Section 1(5) of the Act, the Scheme has been extended to shops, hotels, restaurants, cinemas including preview theatres, road-motor transport undertakings and newspaper establishments employing 10* or more persons.
Further under section 1(5) of the Act, the Scheme has been extended to Private Medical and Educational institutions employing 10* or more persons in certain States/UTs.
*Note: However in some States threshold limit for coverage of establishments is still 20 Employees of the aforesaid categories of factories and establishments. These State Governments/UTs are in the process of reducing the same.
The existing wage limit for coverage under the Act is Rs. 21,000/- per month ( w.e.f. 01/01/2017).
The ESI Scheme is being implemented area-wise by stages. The Scheme has already been implemented in different areas in the following States/Union Territories of Indian Union.
STATES – All the States except Manipur, Sikkim, Arunachal Pradesh and Mizoram.
UNION TERRITORIES – Delhi and Chandigarh
Visit ESIC website »
Related: How do I enable ESI for my employees on Keka?
In case you are having trouble setting up ESI for your employees, write to email@example.com.