Every HR and Payroll professional must have heard about ESI deduction from salary. However, despite this most of them are often uninformed about the features and benefits of ESI.

Through this article, we have tried to cover various details about Employees State Insurance or commonly known as ESI for everyone to understand easily.

What is ESI?

ESI is a self-financing social security and health insurance scheme for Indian workers in the organized sector.

This fund is managed by the Employee’s State Insurance Corporation (ESIC) according to rules and regulations of ESI Act 1948, which oversees the provision of medical and cash benefits to the employees and their family.

The definition of “family” is very similar to the definition of dependants. It includes a worker’s spouse, minor child, unmarried daughter, dependent parents, minor siblings, etc.

There are a large number of ESI hospitals, specialist centers, dispensaries, and clinics that provide the state of the art medical care to those who come under the ESIC. Apart from medical benefits, the employee or worker will be entitled to financial benefits as well.

What are the benefits of ESI?

There are various benefits that are offered by the ESI Scheme. Some of them are as under:

  1. Medical Benefits: The employee and his family members are given full medical care from the day he enter insurable employment. This medical benefit has no limit for medical-care expenditure.

Medical care is also provided to retired and permanently disabled insured persons and their spouses on payment of a token annual premium of Rs.120/-.

  • Sickness Benefits: Sickness simply means a condition in which an employee will undergo medical treatment. During such sickness, an employee can take sickness benefit. 70% of the daily wages of an employee is paid during medical leave for a maximum period of 91 days in two successive benefit periods.
  • Maternity Benefits: All female employees are paid 26 weeks of paid leaves from the time of going into labor and 6 weeks in case of a miscarriage. 12 weeks of pay is provided in the case of an adoption under maternity benefit. Female employee are not eligible to receive a similar benefit under the provisions of the Maternity Benefit Act, 1961, or any other enactment.
  • Dependent Benefits: If the death of an employee happens while on work – 90% of the salary is given to his dependents every month.
  • Disablement Benefits: In case an employee suffers some disablement while on work, he can seek disablement benefits from ESIC. The benefit is paid at the rate of 90% of wage in the form of monthly payment depending upon the extent of loss of earning capacity as certified by a Medical Board.
  • Funeral Expenses: An amount of Rs.15,000/- is payable to the dependents or to the person who performs last rites.
  • Other Benefits :
  • Unemployment Allowance
  • Old Age Care Medical Expenses
  • Confinement Expenses
  • Physical Rehabilitation
  • Vocational Training
  • Skill Upgradation Training under Rajiv Gandhi Shramik Kalyan Yojana (RGSKY)

Who are eligible for ESI?

It is applicable to every factory or establishment where more than 10 employees (in some states it is 20 employees) are employed and their monthly gross salary does not exceed Rs.21000/-.Such factory or establishment has to mandatorily register themselves with the ESIC and deduct ESI Contribution accordingly.

The ESI Scheme is not applicable to:

  1. Seasonal factories exclusively engaged in one or more of the following manufacturing processes, viz., cotton ginning, cotton or jute pressing, decortication of ground-nuts, the manufacture of coffee, indigo, lac, rubber, sugar (including gur) or tea or any manufacturing process which is incidental to or connected with any of the aforesaid processes
  2. Mines, subject to the operation of the Mines Act.

How to calculate ESI?

ESI Deduction are mandatory for employees whose gross salary is less than Rs.21,000.Employees have to make a contribution of 0.75% of the gross salary and employers have to make a contribution of 3.25% of the gross salary. The current contribution of ESIC is applicable from July 2019; earlier it was 1.75% for employee and 4.75% for employer.

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

Contribution PeriodCash Benefit Period
1st April to 30th September1st January of the following year to 30th June
1st October to 31st March of the following year1st July to 31st December

If the gross salary of an employee exceed Rs.21,000 during the contribution period, then he will be covered till the end of that contribution period. Contribution shall be deducted and paid depending on the total wages that have been earned by the employee.

For Example: Employee salary exceed to Rs.23000 in May,his contribution shall be deducted on Rs.23000 till September.

How to file monthly ESI return?

Every employer covered under ESI has to comply with various compliances such as deposit of monthly contribution. The employer of a company or organization will have to file their monthly contributions on the official ESIC portal (www.esic.in) and this should be done by 15th every month.

An employer who fails to make a pay their contribution in the given time period will have to pay an interest of 12% per annum for each day that the employer has defaulted on their payment.

For the complete process of monthly ESI return, please watch our video.

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