Employee State Insurance
Employee State Insurance (ESI) is a health and cash-benefit scheme for workers. It funds medical care and pays cash benefits during sickness, maternity, and employment injury, and provides a pension to dependants if a worker dies from an employment injury. It is one of the payroll compliances every Indian employer must manage.
Eligibility
Section titled “Eligibility”ESI applies to:
- Non-seasonal factories and notified establishments with 10 or more employees (the threshold is 20 in some states).
- Employees earning wages up to ₹21,000 a month (₹25,000 for persons with disability). Employees with a daily average wage up to ₹176 are exempt from paying their own share, but you still pay yours for them.
The wage ceiling has been ₹21,000 since 2017. A proposal to raise it to ₹30,000 is under review but is not yet in force.
What counts as ESI wages
Section titled “What counts as ESI wages”ESI wages are broader than EPF wages. They include basic pay, dearness allowance, house rent allowance, and most cash allowances — including overtime and shift allowances. Some items are excluded:
- Conveyance allowance — the Supreme Court ruled (March 2021) that conveyance or travel allowance is not ESI wages.
- Reimbursements for actual expenses, and annual bonus paid at intervals of more than two months.
Contribution rates
Section titled “Contribution rates”| Contributor | Rate | On |
|---|---|---|
| Employer | 3.25% | ESI wages |
| Employee | 0.75% | ESI wages |
| Total | 4.00% |
You deduct the employee’s share from their salary and deposit both shares with the ESIC by the 15th of the following month. The scheme runs in six-month contribution periods (April–September and October–March).
Worked example
Section titled “Worked example”An employee’s ESI wages are ₹18,000 a month:
| Component | Rate | Amount |
|---|---|---|
| Employee ESI | 0.75% | ₹135 |
| Employer ESI | 3.25% | ₹585 |
| Total deposit | ₹720 |
Benefits
Section titled “Benefits”- Medical care — full medical treatment for the employee and family, effective from the first day of employment.
- Sickness benefit — 70% of average daily wages for up to 91 days in two consecutive benefit periods.
- Maternity benefit — 100% of average daily wages for up to 26 weeks.
- Disablement benefit — 90% of wages during temporary disablement; a monthly payment for permanent disablement.
- Dependants’ benefit — a monthly pension to dependants if a worker dies from an employment injury.
- Funeral expenses — a fixed amount (₹15,000) to the family.
Returns
Section titled “Returns”File a half-yearly return of contributions for April–September by 11 November, and for October–March by 11 May. Pay the monthly contributions and file the half-yearly return on the ESIC portal.
Under the Labour Codes
Section titled “Under the Labour Codes”The Social Security Code now governs ESI and extends it to establishments nationwide, not only to notified areas. As with PF, the wider definition of wages may raise the ESI base. See the Labour Codes overview.