ESI is self-contributing social security and health insurance scheme. The full form of ESI is Employee State Insurance. The scheme offers financial assistance to an employee during sickness, maternity and employment injury. Furthermore, it also covers for medical expenses of the employee’s family members. Establishments or non-seasonal factories with a total number of employees of more than 10 (in some states, 20 employees) and a maximum salary of INR 21,000 should register with ESI. Furthermore, the entity has to register within 15 days from the date of its applicability
What is Employee State Insurance Scheme (ESI)?
The ESI or Employees State Insurance Scheme is an insurance cover provided to workers to aid them in uncertain and challenging times. It is a self-financed fund governed by the Employee State Insurance Corporation and comes under the ESI Act, 1948.
This fund is self-financed by employees out of their gross salary, with additional contributions from the employer.
As per the ESI Act, all establishments with more than 10 employees are covered under the ESI Act and have to maintain an ESI fund. All factories, shops and establishments are covered under the ESI Act unless otherwise specified by the Act. Also, employees are covered only if their salary is below Rs. 21,000 per month and the organisation is covered under ESI.
Rate of Contribution Under ESI
The ESIC is a social security system designed to provide socio-economic protection to workers, their immediate families, and dependents. The rates for the contribution are declared by the ESIC and are revised from time to time.
The contribution includes both the employe and employee contributions. The latest revision is w.e.f. 01.07.2019 and the rates are as follows:
- Employer’s Contribution – 3.25% of the wages paid/payable.
- Employee Contribution – 0.75% of the wages paid/payable.
If the employee’s daily average wage is up to Rs.176, they are exempted from making the contribution; however, the employer must make their share of the contribution.
The employers must deduct the employee contribution from the wages bill and must pay the employer and employee contribution at the rates specified above within 15 days of the end of the month in which contributions are made.
Designated branches of the State Bank of India and some other banks are authorised to receive the contribution on behalf of ESIC.
Period of Contribution
| Contribution | Cash Benefit |
| 1st April to 30th Sept | 1st Jan of the following year to 30th June. |
| 1st Oct to 31st March of the year following. | 1st July to 31st December. |
ESIC Calculation
The ESI contribution of each employee varies based on the wages paid to the employee. The ESI contribution for each employee is as follows:
- Employer’s Contribution – 3.25% of the employee’s wages
- Employees Contribution – 0.75% of the employee’s wages
Total ESI Contribution = Employer’s Contribution + Employees Contribution
For example: Mr. ‘A’ is working in a factory and getting a wages of Rs.20,000.
The ESIC contribution will be as follows:
- Employer’s Contribution – 3.25%*20,000 = 650
- Employees Contribution – 0.75%*20,000 = 150
Thus, the total ESI Contribution will be Rs.800 (650+150).
FAQs
What is the Full Form of ESI?
ESI stands for Employees’ State Insurance. It is a health insurance plan offered by the ESIC, or Employees State Insurance Corporation to Indian employees.
How are Wages defined as per the ESI Act?
According to the ESI Act, “wages” refer to the total amount received by an employee in exchange for services provided. Wage includes basic salary and allowances.
The ESI contribution of both the employer and the employee is calculated on the basis of the employee’s wages. To determine the eligibility and the wages on which ESI contribution should be calculated, some items are included, and some of the components are excluded.