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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.
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:
|Basic Pay||Entertainment Allowance|
|Dearness Allowance||Retrenchment Compensation|
|City Compensatory Allowance||Encashment of leave and gratuity|
|House Rent Allowance||Deduction of health insurance|
|Incentives (including sales commission)||Tax Deductions|
|Any other special allowances||–|
|Attendance and Overtime Payments||–|
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.
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.
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.
|Name||Salary Revision||Contribution Period||Benefit Period|
|Mr Hard Working||July 2020|| 1 st April 2020 – 30th September 2020||1st January to June 2021|
|Mr Diligent||November 2020||1st October to 31st March 2021||1st July to 31st December|
Hence ESI contribution must be made by both employee and employer and the benefits help the employee in unfortunate circumstances.
The advantages of signing up for this Employees’ State Insurance Scheme (ESIC) are numerous. Here are a few examples:
Employers who are required to register under the Employee State Insurance Act of 1948 (“Act”) must take the following steps:
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.
The following documents are required for obtaining registration of an ESI member to get an ESI salary:
Below are the steps mentioned to check the ESI claim status online:
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.
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.
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.
The ESI contributions cover the following benefits-
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.
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.
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