Employee State Insurance (ESI) – Payroll Perspective

Employee State Insurance

Employees’ State Insurance is a self-financial contributory fund scheme intended to provide Social protection towards workers and their dependencies. It is a need-based social insurance scheme that would protect the interest of workers in contingencies such as sickness, maternity, temporary or permanent physical disablement, death due to employment injury resulting in loss of wages or earning capacity. ESI is one of the most popular insurance schemes among employees. The scheme provides both healthcare benefits and cash benefits. The benefits provided to the employees under the Act are also in conformity with the International Labour Organization (ILO) conventions.

Governing Act

Following the promulgation of the Employees’ State Insurance Act, 1948, the Central Government set up the Employees’ State Insurance Corporation (ESIC) to administer the scheme. The Act further absolved the employers of their obligations under the Maternity Benefit Act, 1961 and Workmen’s Compensation Act 1923.

Do all employers come under the purview of the Act?

The Act applies to entities falling under Covered units.

Covered units are entities covered under Factory Act and Shops and Establishment Act where ten or more people are employed. (irrespective of their monthly earnings)

Under Section 1(5) of the Act, the scheme has been extended to shops, hotels, restaurants, cinemas, preview theatre, road motor transport undertakings and newspaper establishment employing 20 or more persons.

Note: Some states have twenty as the limit for the number of employees for the ESI scheme’s eligibility.

Minimum Number of Employees required for registration of Establishment

Sl. No.

State

Employees

Sl. No

State

Employees

1

Himachal Pradesh

20

19

Delhi

10

2

Jammu & Kashmir

20

20

Karnataka

10

3

Jharkhand

10

21

West Bengal

10

4

Kerala

10

22

Andhra Pradesh

10

5

Madhya Pradesh

20

23

Arunachal Pradesh

20

6

Maharashtra

20

24

Assam

20

7

Manipur

20

25

Bihar

10

8

Meghalaya

20

26

Chhattisgarh

10

9

Mizoram

20

27

Goa

20

10

Nagaland

20

28

Gujarat

10

11

Orissa

10

29

Haryana

10

12

Pondicherry

10

30

Uttarakhand

10

13

Punjab

10

31

Chandigarh

20

14

Rajasthan

10

32

Daman and Diu

20

15

Sikkim

20

33

Dadra and Nagar Haveli

20

16

Tamilnadu

20

34

Andaman and Nicobar

20

17

Tripura

10

35

Lakshadweep

20

18

Uttar Pradesh

20

36

Outside India

20

Do all employees come under the purview of the Act?

  • All employees of a covered unit, whose monthly incomes does not exceed Rs. Twenty-one thousand per month, are eligible to avail benefits under the Scheme.
  • Employees earning daily average wage up to Rs. One hundred seventy-six are exempted from ESIC contribution. However, employers will contribute their share for these employees.

Monthly incomes here exclude overtime, bonus, leave encashment.

Contributions

The contribution payable to the Corporation in respect of an employee shall comprise of employer’s contribution and employee’s contribution at a specified rate. The rates are revised from time to time.

Currently,

  • Employee’s contribution rate is 0.75% of the wages.
  • Employer’s contribution rate is 3.25% of the wages paid/payable in respect of the employees in every wage period.
  • Employees in receipt of a daily average wage up to Rs.176 are exempted from payment of contribution. (Employers will, however, contribute their own share in respect of these employees)

Advance Contributions

In the case of manpower suppliers, security agencies or contractors and government contractors, after the generation of the Registration code number, the employers are required to pay an advance contribution for six months, which is worked out as follows:

= Number of employees (earning up to Rs.21000 per month) x minimum wages x 6 months x 6.5%

The advance contribution is to be paid online, and the registration letter along with user ID and password is sent to employer’s email on receiving confirmation from State Bank of India. (which may take one day in case of an account with SBI and two days in case of an account with other banks)

Salary Calculation for ESI

ESI contributions (of both employee and employer) are calculated on the Employee’s Gross monthly salary.

Here, Gross Salary is:

Basic pay

+ Dearness allowance

+ House Rent Allowance (HRA)

+ Incentives (including sales commissions)

+ City compensatory allowance

+ Meal allowance

+ Uniform allowance

+ Attendance & overtime payments

+ Any other special allowances.

But does not include

- Health insurance

- Retrenchment compensation

-Encashment of leave and gratuity

-Annual bonus (Deepavali bonus etc.).

Calculation of ESI Fund contribution

ESI is calculated as a percentage of Gross wages payable to employees.

Particulars

Employee

Employer

Gross Pay

17000

Percentage of Gross Pay

0.75%

3.25%

Contribution

17000 * 0.75% = 127.5

17000 * 3.25% = 552.5

Total Contribution

127.5 + 552.5 = 680

Post ESI Salary/Wages in the hands of Employee

17000 - 127.5 = 16872.5

Example 1- Gross Pay is Rs.21000

Particulars

Employee

Employer

Gross Pay

21000

Percentage of Gross Pay

0.75%

3.25%

Contribution

21000 * 0.75% = 157.5

21000 * 3.25% = 682.5

Total Contribution

157.5 + 682.5 = 840

Post ESI Salary/Wages in the hands of Employee

21000 - 157.5 = 20842.5

Example 2- Gross Pay is Rs.25000

Particulars

Employee

Employer

Gross Pay

25000

Percentage of Gross Pay

0.75%

3.25%

Contribution

25000 * 0.75% = 187.5

25000 * 3.25% = 812.5

Total Contribution

Need not contribute as pay above 21000

Post ESI Salary/Wages in the hands of Employee

25000 - 0 = 25000

Example 3- Gross Pay is Rs.21000 on 1st April. Hiked to Rs.23000 from June.

Deposit into ESI will continue for the entire Contribution period. (that is for April to September)

However, it will be on actual pay received.

Particulars

Employee

Employer

Gross Pay

21000 and 23000

Percentage of Gross Pay

0.75%

3.25%

Contribution

(21000 * 0.75% * 2m) + (23000 * 0.75% * 4m) = 1005

(21000 * 3.25% * 2m) + (23000 * 3.25% * 4m) = 4355

Total Contribution

1005 + 4355 = 5360

Post ESI Salary/Wages in the hands of Employee

134000 - 1005 = 132995

Contribution Period and Benefit Period

Continuing the above discussion, we are clear what is to be done if Salary is Rs.21000 or Rs.25000 at the beginning of the Contribution period. However, what is to be done if the Salary changes during the Contribution period midway? Should the contributions immediately stop?

To handle this, ESI has a concept of Contribution Period during which the ESI contributions have to continue. (even though the salary exceeds the maximum specified limit)

There are two contribution periods of six months and two corresponding benefit periods of six months each.


Contribution Period

Cash Benefit Period

1st April to 30th September

1st January of the following year to 30th June

1st Oct to 31th March of the year following

1st July to 31st December


So, the Contribution Period is the period during which deposits have to be made into the ESI fund. In contrast, Benefit Period is when the employee will still be covered under the ESI scheme and can avail its services/benefits.

Example 4- Gross pay is Rs.23000 on 1st April.

Since pay is above 21000 at the beginning of the Contribution period, deposit into the fund is not needed.

Example 5- Continuing Example 3, Gross pay is Rs.23000 w.e.f June.

Since pay is above Rs.21000 as on 1st October, is the beginning of Contribution period (October-March), deposit into the fund is not needed.

The due date for payment

Contributions are to be deposited by 15th of the month succeeding the month of deduction. (Contribution for the month of April to be deposited by 15th May and so on)

Benefits under ESI

Medical Benefits

An Insured Person (IP) under the scheme and/or a member of his family does not have the right to claim Medical Services over and above those which have been so prescribed.

The beneficiaries are entitled to reasonable medical, surgical and obstetric treatment.

To Insured Persons:

IPs are entitled to avail treatment in ESI Dispensary/Hospital/Diagnostic Centre and recognised institutions, to which he is attached such as:

- Outpatient treatment

- Domiciliary treatment by visits at their residences.

- Specialists Consultation.

- In-patient treatment (Hospitalisation)

- Free supply of drugs dressings and artificial limbs, aids and appliances.

- Imaging and laboratory services.

- Integrated family welfare, immunisation and MCH Programme and other national health programmes etc.

- Ambulance service or reimbursement of conveyance charges for going to hospitals, diagnostic centres etc.

- Medical Certification and

- Special provisions.

Sickness Benefit

Extended Sickness Benefit

Enhanced Sickness Benefit

Maternity Benefit

Disablement Benefit

Temporary disablement benefit

Permanent disablement benefit

Dependant's Benefit

Funeral Expenses

In addition, the scheme also provides some other need-based benefits to insured workers.

These include:

Rehabilitation allowance

Vocational Rehabilitation

Unemployment Allowance (Under Rajiv Gandhi Shramik Kalyan Yojana)

Cash Benefits are disbursed by the Corporation through its Local Offices Los/ Mini Local Offices (MLOs)/Sub Local Offices SLOs/pay offices, subject to certain contributory conditions.

To Family Members of Insured Persons:

While in all implemented areas, IPs are entitled to medical care as detailed above, members of a family of an IP are entitled to one or other medical assistance under the following standards:

- Full Medical Care, i.e., all facilities as for IPs, including hospitalisation.

- Expanded Medical Care, i.e., all facilities as for IPs except hospitalisation.

The ESIC aims at providing Medical care according to uniform standards to the family members in all implemented areas as the rates of the contribution paid by the employees, and the employers are the same throughout the country.

Claims in a private hospital

As mandated by the ESI Act, treatment has to be taken only from the ESIC hospitals or dispensaries. However, in case of emergency, if the treatment is taken from a private hospital, you can raise a claim with the ESIC (subject to ESIC's approval.)

Related topics

ESI Calculator

Provident Fund

Gratuity