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.)
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