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ESI Calculation, ESI Contribution, Example and Formula

The Employees State Insurance Contribution, or ESIC, is a benefit that provides social security to Indian employees. It is governed by the Employees State Insurance Act 1948, which requires both employers and employees to contribute a percentage of their wages to the scheme. The fund covers medical expenses, other financial benefits, and perquisites in times of need.

This scheme ensures that workers and employees receive financial and medical compensation in emergencies and challenging times to maintain a secure working environment.

ESIC stands for Employees State Insurance Contribution or ESI calculation, which is a benefit granted in the form of social security to employees to guarantee against financial distress provided by sickness and disability. It is covered under the Employees State Insurance Act 1948, which asks employees and employers to contribute a percentage of their wages towards this fund, or else they might spend anything related to medical charges, other financial benefits, and perquisites from the time when it requires.

This ensures that laborers and employees get sufficient support for financial and medical claims in emergencies, not only when they have problems maintaining a safe working environment.

What is Employee State Insurance Scheme (ESI)?

The ESI or Employees State Insurance Scheme in India is a social security scheme that provides medical care and other financial benefits to employees and their dependents. It is necessary for organizations or establishments recruiting a certain number of workers, and they are required to register under ESI scheme.

The key features of this scheme are medical care (like hospitalization, outpatient treatment, and maternity benefits), cash benefits (like sickness, maternity, and employment injury), dependent benefits (like for the employee’s spouse and dependent children), and pension and retirement benefits to eligible employees.

For a complete automated payroll compliance solution, calculate and file statutory compliances such as ESIC, PF, and PT with just one click.

Wages as per the ESI Act

The Employees State Insurance Scheme sets a salary limit for employees who are eligible for its benefits in India. The Central Government of India reviews and revises this scheme regularly as and when needed. The maximum salary limit for the scheme benefits is ₹21,000 per month. For specially abled employees, the ESI contribution salary limit for the scheme benefits is ₹25,000 per month.

If an employee’s monthly salary exceeds this limit, they will not be eligible for the benefits of this scheme. If, however, the employee’s salary in any month falls under the maximum limit, they are still eligible for the benefits for that particular month.

It is essential to note that the scheme’s maximum salary limit may differ depending on India’s various states and the establishment type. For the most up-to-date and accurate information, it is advised to discuss it with HR professional. Some items included and excluded in the ESI calculation are mentioned below.

Components of ESI Calculations

The ESI calculations are based on the employee’s gross salary. The critical components of the scheme contribution are mentioned below.

Employer Contribution

This is the contribution made by the employer on behalf of the employees. The rate of the employer’s calculation may vary depending on the monthly salary.

Employee Contribution

This is the contribution made by the employee to the scheme. The rate at which the employees are supposed to calculate is generally lower than the employer’s contribution rate.

Here is the overview of the current contribution rates

Additionally, the contribution may have certain freedoms in specific areas. For example, small establishments with less than 10 employees are exempt from registering and contributing to the scheme. Consult with the authorities or visit the official website of the ESIC and read the guidelines for more detailed information on which rates will apply to you according to your situation.

How to Calculate ESI Contribution

The calculation of the Employee State Insurance (ESI) contribution is determined by an employee’s monthly wages. Below, you will find the rates applicable for both employers and employees regarding this calculation.

Employer’s Calculation

Upto ₹21,000 per month – 3.25% of the employee’s wages

Employee’s Calculation

Upto ₹21,000 per month – 0.75% of the employee’s wages

Above ₹21,000 per month – No contribution is needed from the employee

ESI Contribution Calculation Formula

The calculated ESI is obtained by adding the basic pay with the allowances (DA + HRA + Medical + City compensatory allowance, etc.)

ESI Calculation Example

Let’s consider an example to understand the calculation better. Mr. A’s salary is ₹15,000.

Employer’s contribution = ₹5,000 * 3.25% = ₹487.50

Employee’s contribution = ₹15,000 * 0.75% = ₹112.50

Total contribution = ₹487.50 + ₹112.50 = ₹600

Please note that the maximum salary limit for the scheme may vary depending on the state of India and the type of establishment. You are advised to go through the same with the official website for the most up-to-date and accurate information.

Contribution Period and Benefit Period

The Employees’ State Insurance calculation is divided into the contribution period and the benefit period.

Contribution Period

This is the time or period during which the employee is supposed to contribute to the fund. This period is generally monthly. The contributions are calculated based on the employee’s salary. The scheme divides the year into two contribution periods. The contribution period is mentioned below.

• 1st April to 30th September
• 1st October to 31st March

Benefit Period

This is when the employee receives or is eligible to receive the benefits. This benefit period may vary depending on the type of benefit and certain particular circumstances. Special circumstances like the sick benefits period may be a few days, but compared to the maternity benefits period, it may be for a specified number of weeks. The benefit period is mentioned below.

• 1st January to 30th June (for contributions made from 1st April to 30th September)
• 1st July to 31st December (for contributions made from 1st October to 31st March)

Payment and Filing of ESI Contribution

The employer is responsible for collecting the employee’s contributions and submitting the total to the corporation. Under the ESI Act 1948, an employer must register and pay the ESI calculation and file a return.

Payment Methods

There are two available methods for submitting payments: Online and Offline. Employers can conveniently choose the online payment method through the official portal by using various payment methods like net banking, UPI, or debit/credit cards. If not, the offline mode of payment is also available through designated banks and government treasuries.

Filing Returns

Employers are advised to file monthly returns with the corporation and provide details of employee wages and contributions. Under certain circumstances, quarterly returns are allowed.

Deadlines

The last date for payment is the 15th of every month for the contribution. Employers registered under the act are supposed to pay and deposit the amount in the authorized bank by the statutory body before the deadline. However, the exact dates for the payment depend on the different states and types of establishments.

Penalties

If the employer fails to deposit the amount, this situation results in penalties and interest on the charges. Non-payment or late payment is a punishable offense under the act. Non-payment, late payment, or falsifying payments is a punishable offense for up to 3 years of prison and ₹10,000 fine under the act. Employers who fail to make timely payments are liable to pay interest at 12% per annum for each day of delay.

Updates and Changes in ESI Contribution Rates

The ESI calculation rates in India have undergone significant changes, and the one that took a noteworthy turn of events was in the year 2019, 1st July, with a substantial reduction. This change was implemented to ease the financial burden on employers and employees and encourage more participation in the ESI scheme. Below is the overview of contribution rates

Before 1st July, 2019

Total contribution – 6.5% of wages, wherein

• Employers share 4.75%
• Employees share 1.75%

After 1st July, 2019

Total contribution – 4% of wages wherein

• Employers share 3.75%
• Employees share 0.75%

The Government of India termed this reduction a “historic decision.” It is expected to benefit approximately 3.6 crore employees and 12.85 lakh employers and result in around ₹5,000 crore annual savings.

For the latest updates and information, visit the official site and learn the contribution rates. On the official website of the ESIC, look for the ESI calculation section, where all the updates and latest rates will be mentioned. You can also visit their office locally for the most accurate and up-to-date information on contribution rates.

It is essential to note that the maximum salary limit for the scheme may vary depending on the state of India and the type of establishment. In addition, certain exemptions or concessions may be available for specific sections or categories of employees or establishments.

Documents Required for Registration of ESI

The documents mentioned are necessary to register to become a member.

• Address proof of the business.
• PAN card of the business.
• Details of all partners, shareholders, and directors.
• A license under the Factories Act or Shop Establishment Act.
• Basic documents as per the nature are Articles of Association, a Memorandum (if a company), and a Partnership deed (in case of a partnership or Limited Liability Partnership—LLP).
• Provide details of all employees, such as their Aadhaar card, PAN card, passport-size photo, declaration, and wages.
• Bank details.

Conclusion

In conclusion, the Employees State Insurance Scheme or ESI calculation scheme is a vital social security scheme in India that provides medical care and other financial benefits to employees and their dependents. Establishments with more than 10 employees (20 employees in some states) are required to register.

Understanding and complying with this scheme has its own perks for organizations and employees individually. For organizations, benefits like statutory compliance, employee satisfaction, risk management, increased productivity, positive brand image, etc., while for employees, benefits like financial security, medical care, dependent benefits, etc.

Organizations and employees can benefit from the social advantages provided by the scheme by understanding and staying compliant with the requirements.

FAQs

What is the Current Rate of ESI Contribution?

The current rates of ESI contribution are:

• Employer’s ESI calculation: 3.25% of the employee’s wages.
• Employee’s ESI calculation: 0.75% of the employee’s wages.

What is the Maximum Salary Limit for ESI Eligibility?

The central government periodically revises the maximum salary limit for benefits. As of 2023-2024, it is ₹21,000 per month.

What Documents are Required for ESI Calculation Registration?

The required documents may vary depending on the state and the type of establishment but generally include proof of business, employee details, and bank account details.

What are the Penalties for Late Payment of ESI Calculation?

Late payment of ESI contributions can result in penalties and interest charges.

How is the ESI Calculation Paid?

ESI contributions are typically paid online through the ESIC portal.

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