It is a very basic and essential thing that every employer as well as employees in India must know about the Employees’ State Insurance Corporation, commonly abbreviated as ESIC.

The Employees State Insurance is basically self-financing social security and health insurance system made for employees working in India. As stated by the government of India on the a website, “the Employees’ State Insurance Corporation of India is a multidimensional social system tailored to provide socio-economic protection to the worker population and immediate dependent or family covered under the scheme.”

Before we go on to know more about ESI and important details about it like ESI employee contribution, eligibility and benefits, we must know more about the Employees’ State Insurance Act, and what it actually aims at covering.

The basics of Employees’ State Insurance Corporation and the ESI Scheme

ESI funds are managed by the Employees’ State Insurance Corporation (ESIC) mandated by the Employees’ State Insurance Act or ESI Act of 1948. The body works according to the rules and regulations of the Act and is administered by the Ministry of Labour and Employment, Government of India.

The ESI Act aims to provide health and financial benefits to employees in India, in cases of sickness, maternity, any kind of employment injuries, or even death, and certain other associated matters. Under the Act medical benefits are offered to employees insured, and their families.

In other words, it aims at providing employees with financial assistance and medical care in case of any injuries at the workplace or their incapacity to work due to the same. It also offers benefits of medical care to families and an insurance amount in case of the death of the employee at the workplace, or due to an accident.

Here are the kind of benefits offered by the Employees’ State Insurance Act, 1948.

  • Medical benefits
  • Sickness benefits
  • Maternity benefits
  • Disablement benefits
  • Dependants’ benefits
  • Funeral expenses
  • Rehabilitation allowance

ESI- Eligibility and Applicability

The ESI fund is applicable to all corporate bodies and establishments that have a workforce of at least 10 members and above. Although the ESI scheme mentions a list of areas tagged as ‘Notified Areas’ and the establishments located in these areas are covered by the ESIC.

The ESI funds are managed and maintained by the independent body known as Employees State Insurance Corporation. That being said, the ESI Act of 1948 mandates the basic regulations of ESIC and all important details like benefits, eligibility, applicability and all other related details.

If you are an employer, it is imperative for you to know about the ESIC scheme as the funds collected for ESI from employees involve both the employer and employee contributions.

Before moving onto ESIC employee contribution and other important details about the ESI scheme like ESIC employer contribution calculations, let us take a look at the kind of establishments that are covered under the ESIC act if there are more than 10 persons employed at the firm. This will make it more clear as to why you need the best payroll management system to manage the ESIC contributions of your firm and the ESIC contribution calculations.

  • Shops
  • Hotels and restaurants in the sales sector
  • Cinemas and preview theatres
  • Road motor transport establishments
  • Printing establishments
  • Manufacturing establishments
  • Private educational institutions
  • All kinds of factories
  • Medical institutions
  • IT firms
  • Corporate bodies
  • MNCs with working units established in India
  • Trustees and charitable organizations

The minimum number of employees that need to be registered to be covered under the Employees State Insurance Scheme, is either 10 or 20, depending on the state in which the business is located.

StateMinimum number of employees to be registered
Himachal Pradesh20
Jammu & Kashmir20
Madhya Pradesh20
Tamil Nadu20
Uttar Pradesh20
West Bengal10
Andhra Pradesh10
Arunachal Pradesh20
Daman and Diu20
Dadra and Nagar Haveli20
Andaman and Nicobar20
Outside India20

A few points to remember about ESIC applicability

In regards to ESIC coverage and applicability, here are a few things that you must remember as an employer. Although here is a pro tip if your business is already covered under the ESIC scheme: Opt for the best payroll software for small business, if you have a small or medium sized business or go for the best cloud based HR and Payroll software if you have a large enterprise level business and make ESI insurance calculation seamless at your firm.

  • All establishments having more than 10 employees are required to register under the Employees’ State Insurance Act, mandatorily.
  • The employer has to register under the ESI Act within 15 days from the date the ESI scheme becomes applicable to the establishment.
  • Once a firm comes under the ESI Act, it continues to be under the Act even if:
  1. The number of employees at the firm falls below the prescribed limit to be covered under the ESI act.
  2. There are any changes in the operations or manufacturing activity of the establishment.

Employees State Insurance Contribution: Calculating the contributions and all other details

For ESI contribution calculate you must know about all the necessary details and regulations so that there are no errors made during the process. Although opting for an Employee Payroll Management Software or the Best HR Management Software in Bangalore will take care of the aspect seamlessly, here is all that you need to know about Employees’ State Insurance contribution.

Wage Limits

According to the recent amendments made to the ESI Act, 1948, the employees who have a gross salary of less than or equal to the amount 21000 rupees are entitled to be covered under the act. These employees who draw a gross salary of the amount 21000 rupees are eligible to receive all benefits under the ESI Act of 1948, if they work in an establishment with more than 10 or 20 employees (depending on the location).

In addition to this the ESI scheme consists of ‘contribution periods’ to help the HR team manage payroll when employee salaries change. That is, when an employee’s salary exceeds Rs. 21000, the employees and employer must continue to make contributions until the end of the contribution period.

Contribution PeriodCorresponding Benefit Period
1st of April to 30th of September1st of January to 30th of June of the following year
1st of October to 30th of March1st of July to 31st of December of the following year

Employees State Insurance Contribution

The ESI scheme is basically a self-funded insurance system where both the employee and the employer contribute towards an employee’s state insurance fund. The scheme being contributory in nature, has some specific mandates about ESIC employee contributions as well as the contributions of the employers.

The Government of India recently made some changes in the contribution of both:

  • ESIC Employee Contribution
  • ESIC Employer Contribution

towards the ESIC funds of an employee. The rate of contribution has been reduced for the first time in India, and the rates of contribution are applicable from July 2, 2019.

Earlier the total contribution towards the ESI funds were 6.5% of the gross salary of the employee. This was brought down to a total of 4% of the employee’s gross salary as contribution towards the fund, by the recent amendments.

Now, let us take a detailed look at the employer and ESIC employee contributions.

Earlier the employer’s contribution, towards the ESI fund of an employee was 4.75% of the gross salary of the employee, and the revised rates stand at 3.25%. The employees contribution was mandated at 1.75% earlier but it was then brought down to 0.75% through the enactment of the recent revisions. This is applicable for every wage period in respect to the gross salary of the employee.

Although employees with daily average wage of upto Rs. 137 would be exempted from their contributions towards the fund, employers will have to contribute towards the ESI funds of such employees.

Collection of the contributions

Every employer covered under the ESI act is liable to collect both the employer’s and employee’s contribution from the wages of the employees, at the specified and revised rates, and submit it to the Employees’ State Insurance Corporation within 15 days of the last day of the calendar month in which the contributions fall due.

Summing it up

Coming to co conclusion, we sincerely hope that this article clears all your doubts about the Employees’ State Insurance Act and answers all your questions about ESIC employee contributions and ESIC employer contribution calculate. If you run a business, it is ideal for you to go for an efficient employee payroll management system to make the calculations easier and the entire payroll management simple and seamless.

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