ESI Calculation

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 (ESIC) 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 wages 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:

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 = Rs.135 
Employer Contribution – 3.25%*18,000 = Rs.585

So a total contribution of Rs.720 (135+585) will be made.

Employee State Insurance Contribution Collection

An employer is responsible for paying his contribution for each employee and deducting employee contributions from their wages. Furthermore, the employer must pay the ESI contributions to the ESIC within 15 days of the last day of the calendar month in which the contributions are made. The same can be deposited online or to authorised designated branches of SBI or other designated branches.

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 1st 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.

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.
• Medical benefits to an employee and his/her family members.
• 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.
• Temporary disablement benefits in case of employment injury at the rate of 90% of wages till the disability continues.
• Permanent disablement benefits at the rate of 90% of wages is given every month depending upon the extent of loss of earning capacity certified by a Medical Board.
• Expenses associated with the funeral of Rs.15,000.

Returns Registration and Filing of ESI in Salary

An employer covered under the Employee State Insurance Act 1948 ('Act') must register with the ESIC to pay the ESI contibutions and file returns. The process is as follows:

• An employer needs to keep all documents ready for reference.
• Next, an employer must register on the ESIC website and file Form 1 to register the establishment with ESIC. 
• ESIC will verify the details and issue a 17 digit unique number. This unique number is required for all filings.
• Every employee will receive an ESI card after registration stating all details by the employer. 
• Employers can pay the monthly ESI contribution amount online on the ESIC website through e-Challan.
• The contributions towards ESI must be paid to the ESIC on or before 15th of every month online. These contributions are very beneficial to employees, and hence the provisions for non-payment or delayed payment are very stringent.

On successful registration of the establishment, employers can file returns online. To file ESI returns online, the employer must follow the below-mentioned procedure:

• Employer must log in to the official ESIC website by entering the credentials received at the time of registration.
• Once the employer is able to log in using the credentials, there is a list of actions that are available. For instance, modify employee details, report an accident and so on.
• The employer must select the ‘File Monthly Contibutions’ option.
• Next, the month, year and contribution details must be entered and then click on the ‘Submit’ button.
• Once the contibutions are made, go to the ‘List of Actions’ and click ‘Generate Challan’.
• The challan must be downloaded and documented for future reference and inspections.
• The half-yearly return of ESIC for the period April to September is due by 11 November, and October to March is due by 11 May.

Documents Required for Registration of ESI 

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

• 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
• Basic documents required as per the nature of entity – Articles of Association, Memorandum in case of a company, partnership deed in case of a partnership and Limited Liability Partnership
• Details of all directors, partners, and shareholders
• Details of all employees and their salary structure
• Bank details

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.
• Search ‘ESIC’ and click on ‘Claim Status’
• Login using your phone number and OTP.
• 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’.
• 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 ESIC.
• 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 three years in prison but not less than one year and a Rs 10,000 fine under the ESI Act.
• Employer must also pay a simple interest at the rate of 12% per year for each day of delay or default in payment. 

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