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ESI Calculation

Updated on :  

08 min read.

The Employee State Insurance (“ESI”) is a contributory fund that has contributions both from the employer and employee and enables Indian employees to take part in a self-financed, healthcare, insurance fund.

The scheme is managed by the Employee State Insurance Corporation which is a government body, and it is governed by the ESI Act 1948. The ESI is the largest integrated need-based social insurance scheme for employees. It protects the employees in times of uncertain and unfortunate events. The scheme provides both cash benefits and healthcare.

All non-seasonal factories having 10 or more employees are covered under ESI. All the establishments that are covered under the Factory Act and Shops and Establishments are also eligible for ESI. The units that have 10 or more employees or are located in the scheme-implemented areas are covered under this Act.

Although the establishments are covered under the Act, not all employees are covered under the Act. So, what is the eligibility criteria for employees? All employees whose monthly income that is excluding overtime, bonus, leave encashment does not exceed Rs.21,000 are covered under this Act.

Wages as per the ESI Act

The contributions (employee and employer) are made basis on the wages paid to the employees. Some of the inclusions and exclusions from the wage component are as follows:

InclusionsExclusions
Basic PayEntertainment Allowance
Dearness AllowanceRetrenchment Compensation
City Compensatory AllowanceEncashment of leave and gratuity
House Rent AllowanceDeduction of health insurance
Incentives (including sales commission)Tax Deductions
Medical Allowance
Meal allowance
Any other special allowances
Attendance and Overtime Payments

Computation of ESI

The rates of the ESI contribution are calculated on the wages paid. Currently, the employee contribution is 0.75% of wages paid/payable, and employer contribution is 3.25% of wages paid/payable.

Total ESI Contribution = Employer’s Contribution + Employees Contribution

Let us say Mr Hard Working with wages of Rs.18,000 work in a factory unit.

The contribution will be as follows:

Employee Contribution – 0.75%*18,000 = 135
Employer Contribution – 3.25%*18,000 = 585

So a total contribution of Rs.720 will be made. The onus of deducting the contribution and depositing the same is on the employer. The employer must deposit the amount within 15 days of the end of the calendar month in which the deduction is made. The same can be deposited online or to authorised designated branches of SBI or other designated branches.

Employee State Insurance Contribution Collection

An employer is responsible for paying his contribution for each employee and deducting employee contributions from wages bills. Furthermore, the employer must pay the contributions to the Corporation within 15 days of the last day of the calendar month in which the contributions are due.

The Corporation has authorised certain SBI branches and a few other banks to accept payments on its behalf.

Contribution Period and Benefit Period

The concept of contribution period covers the employee in the event of the wages increasing from the threshold limit of Rs.21,000.

Let us continue with the above example, say Mr Hard Working was earning wages of Rs.18,000 till June 2020, the wages increase to Rs.22,000 from July 2020. The contribution period is 1 st April 2020 – 30th September 2020 and hence the deduction will continue on the revised salary up to September and he will be eligible for the benefit up to 30th June of the following year.

Similarly, say an employee Mr Diligent earns a wage of Rs.20,000 till October 2020 and from next month he earns Rs.23,000. The deduction must continue on the revised salary up to 31st March 2021 and he will be eligible for the benefit up to December 2021.

NameSalary RevisionContribution PeriodBenefit Period
Mr Hard WorkingJuly 2020 1 st April 2020 – 30th September 2020
1st January to June 2021
Mr Diligent November 2020
1st October to 31st March 20211st July to 31st December

Hence ESI contribution must be made by both employee and employer and the benefits help the employee in unfortunate circumstances.

What are the Advantages of Being an ESIC Member?

The advantages of signing up for this Employees’ State Insurance Scheme (ESIC) are numerous. Here are a few examples:

  • Sickness benefits at a rate of 70% (in the form of pay) will be paid in the event of any certified illness lasting for a maximum of 91 days in any year.
  • An employee’s and his family’s medical coverage.
  • Pregnant women are entitled to maternity leave (paid leaves).
  • If an employee dies on the job, 90% of their pay is paid to their dependents every month for the rest of their lives.
  • The same rules apply in the event of an employee’s disability.
  • Expenses associated with the funeral.
  • Medical expenses for the elderly.

Returns Registration and Filing of ESI in Salary

Employers who are required to register under the Employee State Insurance Act of 1948 (“Act”) must take the following steps:

  • An employer must maintain all papers on hand in case they are needed.
  • After that, an employer must file Form 1, which is available on the ESIC website in PDF format.

Note: ESIC will double-check all of the information and assign a 17-digit unique number. All filings require this one-of-a-kind number.

Documents Required for Registration of ESI in Salary

The following documents are required for obtaining registration of an ESI member to get an ESI salary:

  • Address proof of the business
  • PAN card of the business
  • Details of all partners, directors, and shareholders
  • A license under the Factories Act or Shop Establishment Act
  • Details of all employees and their salary structure
  • Bank details
  • Documents such as partnership deed, Articles of association, and Memorandum in case of company.

How to Check Claim Status Of ESI Online?

Below are the steps mentioned to check the ESI claim status online:

  • Open the UMANG App or you can download it on your smartphone.
  • Enter the IP number or the ESIC Insurance Number and click on ‘Get OTP’.
  • Enter the OTP that will be sent to the reference phone number and click on ‘Submit’.
  • Now select ‘Claim Status’ under the services section.
  • If you have made any claims, you will be able to see the status or you use the advanced search to find the details.

Consequences of Employee Contribution Non-Payment or Late Payment

  • The amount deducted from an employee’s pay as an employee contribution is considered to have been entrusted to the employer. As a result, the employer is more responsible for ensuring that the contribution is deposited with ESI in salary.
  • Non-payment or late payment of an employee’s contribution deducted from his or her wages is a punishable offence under the ESI Act.
  • Non-payment, late payment, or falsifying payments are punishable by up to two years in prison and a Rs 5,000 fine under the ESI Act.

Consequences for Employers When ESI in Salary is Delayed

If an employer fails to contribute within the time limit established in the rule, they will be subject to simple interest at the rate of 12% per year for each day of delay or default in payment.

Frequently Asked Questions

What are wages under the ESI Act?

As per the ESI Act, wages are the remuneration paid or payable in cash to an employee. It includes any payment to an employee during authorised leave, strike, or lock-out, which is not illegal or layoff. It also includes other additional remuneration, if any, paid at intervals not exceeding two months. However, it does not include any contribution paid by the employer to any pension fund or provident fund, travelling allowance, gratuity payable or any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment.

What is the contribution under the ESI Act?

Currently, the employee’s contribution rate is 0.75% of their wages, and the employer’s contribution rate is 3.25% of the wages paid/payable for the employees. The employees who receive a daily average wage of up to Rs.176 are exempt from paying their share of contribution. However, the employers will contribute their share in respect of the employees having a wage of up to Rs.176 per day.

What are the benefits for which ESI contribution can be claimed?

The ESI contributions cover the following benefits-

  • Medical benefits
  • Sickness benefit
  • Maternity benefit
  • Disablement benefit, including temporary disablement benefit and permanent disablement benefit
  • Dependant’s benefit
  • Funeral expenses
What is disablement under ESI Act?

Disablement is a condition resulting from employment injury. When the injury renders the insured person temporarily incapable of doing his/her work and necessitating medical treatment, it is considered temporary disablement. When the disablement reduces the employee earning capacity, it is a permanent partial disability. When the disablement totally deprives the insured person of the capacity of doing any work, it is a permanent total disability.  

What is the mode of payment of the ESI contribution?

The employer needs to file monthly contributions online through the ESIC portal for all its employees after duly registering them. The employer must file the employee wise number of days for which wages are paid. The ESIC has facilitated the payment of ESI contributions online via the payment gateway of 58 banks in addition to the SBI. The total amount of contribution of all the employees for each month is to be deposited in any branch of the SBI by the online generation of a challan through the ESIC portal using the employers’ credentials. 

Disclaimer: The materials provided herein are solely for information purposes. No attorney-client relationship is created when you access or use the site or the materials. The information presented on this site does not constitute legal or professional advice and should not be relied upon for such purposes or used as a substitute for legal advice from an attorney licensed in your state.

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