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ESI Calculation

By Mayashree Acharya

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Updated on: Jun 16th, 2024

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14 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 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:

InclusionsExclusions
Basic PayWashing Allowance
Suspension Allowancce or Subsistence AllowanceAnnual Bonus
Overtime AllowanceIncentive Bonus
Wages paid during layoffProduction Bonus
House Rent AllowanceInam or Ex-Gratia payment
Night Sift or Heat, Gas and Dust AllowanceAnnual Commission
Conveyance Allowance and Area allowanceService Charges
Medical AllowanceGazetted Allowance
Newspaper AllowanceExgratia payment during strike for travelling expenses
Education Allowance and Personnel Allowance Saving scheme
Drivers AllowanceHamals or Coolies employed at a particular time outside the premises of the factory or establishment
Food, Milk, Tiffin or Lunch Allowance paid in cash at a fixed rateExpenditure on servicing of machines
Wages and Dearness Allowance for unsubstituted holidaysCommisssion to dealers or agents
Interim ReliefService Contract
Attendance BonusPayment made on account of un-availed leave at the time of discharge
Hamals or Coolies employed at a particular time inside the premises of the factory or establishmentCommission on advertisement secured for newspapers, if not paid to the regular employee
Expenditure on annual or periodical services contractFuel Allowance and Petrol Allowance
Matinee AllowanceEntertainment Allowance
Shift AllowanceShoes Allowance
Location AllowancePayment made on account of gratuity on discharge or retirement
Compensatory AllowancePayment made on encashment of leave
Cash handling allowance paid to cashier 
Supervisory Allowance 
Additional pay paid to training staff 
Charge Allowance, Steno or Typist Allowance, Plant Allowance and Computer Allowance  
Honorarium for looking after the hospital or dispensary 
Gestetner, Photocopier or Printer Allowance 
Personnel or Special Allowance 
Machine Allowance and Convassing Allowance 
First-aid Allowance  
Exgratia payment if payment is made within an interval of two months 

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.

NameSalary RevisionContribution PeriodBenefit Period
Mr Hard WorkingJuly 20201st April 2020 - 30th September 20201st January to June 2021
Mr DiligentNovember 20201st October - 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.
  • 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.

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.
 

Related Articles

Online ESI Return Filing: Process, Penalty for Late Filing

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I am an advocate by profession and have a keen interest in writing. I write articles in various categories, from legal, business, personal finance, and investments to government schemes. I put words in a simplified manner and write easy-to-understand articles. Read more

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Quick Summary

The Employee State Insurance (ESI) scheme in India, governed by the ESI Act 1948, covers employees in times of uncertain events. Employees and employers contribute, and benefits include healthcare and cash benefits. Non-seasonal factories with 10+ employees are covered. ESIC manages the scheme. Contributions are based on wages. Employee contributions are 0.75%, and employer contributions are 3.25% of wages. Contributions must be paid on time. Benefits include maternity leave, sickness benefits, and temporary and permanent disability benefits.

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