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ESI Calculation: How to Calculate Formula & Example Guide

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The Employees’ State Insurance (ESI) is the largest need-based insurance scheme for Indian employees governed by the Employees’ State Insurance Act, 1948. It is managed by the Employees’ State Insurance Corporation (ESIC) and is designed to provide socio-economic protection to workers, their immediate families, and dependents.

This scheme provides medical care, cash benefits, and financial protection to employees in uncertain or difficult times. Since both employers and employees make contributions, understanding the ESI calculation and the ESI formula is essential to ensure correct deductions and filings.

This blog explains the ESIC calculation process, the formula used, and provides examples to make the concept of ESI contributions simple.

Wages as per the ESI Act

According to the Employees’ State Insurance (ESI) Act, all establishments with 10 or more employees are covered under ESI. This applies to factories, shops, and other establishments unless specifically exempted.

All employees whose wages do not exceed ₹21,000 per month (₹25,000 for specially abled employees) are eligible for coverage under the scheme, provided their organisation is covered under the ESI scheme.

If the salary goes above the limit, coverage stops, but if it falls within the limit in any month, benefits continue for that period.

ESI Calculation Formula

The ESIC decides the contribution rates for ESI and may change them from time to time. As per the latest revision to the ESIC Act, 1948, effective from 1st July, 2019, the employer contributes 3.25% of the gross salary, and the employee contributes 0.75% of the gross salary.

Employees earning a daily average wage of up to ₹176 are exempt from paying their contribution. However, the employer is still required to pay their share.

The ESI calculation formula is:

ESI Amount Calculation = (Gross Wages × Employer Rate) + (Gross Wages × Employee Rate)

For accurate deductions, the ESI formula is applied to the employee’s gross monthly wages, which include all allowances but exclude employer contributions to PF/ESI. This ESI formula ensures that contributions are calculated fairly across different wage structures.

Gross Wages are calculated by adding basic pay and allowances such as DA, HRA, Medical, and City Compensatory Allowance, etc. The final contribution amount is derived by adding the employer’s and employee’s shares.

How to Calculate ESI with Example

Based on the above section, let us now understand the ESI calculation through an example.

Suppose an employee, Mr. Rajesh Khanna, is earning monthly wages of ₹19,000 (Basic Pay + Allowances). As per the ESI Act, 1948, the ESI amount calculation is as follows:

In this example, for Mr. Rajesh Khanna, who earns ₹19,000 per month, the employer contributes ₹617.50 and the employee contributes ₹142.50. According to the ESI calculation, the total contribution deposited in the ESI fund is ₹760 per month (usually rounded to the nearest rupee as per payroll practice).

Contribution Period and Benefit Period

ESIC divides the year into two contribution periods and two benefit periods. Each contribution period has a corresponding benefit period in the following year. This means that contributions made in one period allow employees to claim benefits in the next period.

This system also covers employees whose wages rise above ₹21,000 during the contribution period. Their contributions continue until the end of that period, and they remain eligible for benefits during the corresponding benefit period.

Let Us Consider Two Examples to Understand this Clearly:

• In the first example, Mrs Rachna Shah’s wages crossed ₹21,000 in July, but ESI deduction continued till September, keeping her covered until June 2021.
• In the second example, Mr Ankit Tiwari’s wages crossed ₹21,000 in November, so the deduction continued till March 2021, giving him benefits until December 2021.

Advantages of Being an ESIC Member

The benefits of signing up for this Employees’ State Insurance Scheme (ESIC) are numerous. A few of them are mentioned below:

Sickness Benefit

Employees receive 70% of their wages for a maximum of 91 days in any year during certified illness.

Medical Benefit

Comprehensive medical care is provided to employees and their family members.

Maternity Benefit

Pregnant women are entitled to paid maternity leave under the scheme.

Dependents’ Benefit

In case of the employee’s death during employment, 90% of the wages are paid to the dependents every month for the rest of their lives.

Temporary Disablement Benefit

In case of work-related injury, employees get 90% of their wages until recovery.

Permanent Disablement Benefit

Employees with permanent disability receive 90% of wages monthly, based on the extent of disability certified by a Medical Board, as per the ESIC calculation.

Funeral Expenses

Employees are provided ₹15,000 towards funeral costs.

ESI Contribution Collection Process

Every month, the employer deducts the employee’s share of ESI and adds their own contribution. This combined amount must be deposited with ESIC within 15 days of the last day of the month in which it was deducted.

Employers can make the payment online through the official ESIC portal by using payment methods like net banking, UPI, or debit/credit cards. If not, the offline mode of payment is also available through SBI Bank or at any other authorised bank.

Steps to Check ESI Claim Status Online

Employees can easily track their ESI claim status through the following steps:

Step 1: Open the UMANG App on your smartphone (or download it if it’s not installed).

Step 2: Search for ‘ESIC’ and click on ‘Claim Status’.

Step 3: Log in to the ESIC portal using your mobile number and OTP.

Step 4: Enter the IP number or ESIC Insurance Number and click ‘Get OTP’.

Step 5: Enter the OTP received on your mobile and click ‘Submit’ to view claim status.

ESI Contribution Process

Employers covered under the ESI Act must register their establishment with the Employees’ State Insurance Corporation (ESIC) to pay the ESI contributions and file returns.

Here are the steps:

Step 1: Registration Process

The process starts with registering with the ESCI portal. The steps for registration are as follows:

Visit the ESIC official website.

Fill out Form 1 online to register the establishment.

Submit all required business and employee details.

After verification, ESIC issues a 17-digit unique code number that is required for all filings.

Each employee receives an ESI card after registration with their personal details.

Step-2: Documents Required for ESI Registration

Under the ESIC Act, 1948, employers need to submit the following documents to register with ESIC:

Business address proof

PAN card of the business

Details of all directors, partners, and shareholders

License under the Factories Act or the Shop & Establishment Act

Founding documents based on entity type, such as Articles of Association, Memorandum of Association, partnership deed in case of a partnership, and Limited Liability Partnership

Employee details, including their salary structure

Bank account details

Step-3: Filing ESI Returns

On successful registration, employers must follow the procedure below to file ESI returns online:

Log in to the official ESIC portal by entering the credentials received at the time of registration.

Select “File Monthly Contributions” from the menu.

Enter month, year, and contribution details, and then click on the ‘Submit’ button.

Next, go to the ‘List of Actions’ and click ‘Generate Challan’. Generate and download the challan for records and inspections.

Step-4: Deadlines for Filing ESI Returns

The deadline for filing ESI returns for both periods is as follows:

Step-5: Penalties for Non-Payment or Late Payment

Statutory Compliance in HR and Payroll is essential to avoid penalties or legal actions. Employers are legally responsible for depositing the amount deducted from an employee’s pay as the employee’s ESI contribution on time. Any non-payment, late payment, or false payment is a punishable offence under the ESI Act.

Employers are punishable for up to 2 years in prison and a penalty of Rs. 5000.

Employers must also pay an interest of 12% per annum for each day of delay or default in payment.

Conclusion

The ESI calculation process ensures that contributions from both employers and employees are accurately determined and submitted on time. Managing ESI contributions manually can be time-consuming and prone to errors. factoHR’s payroll software automates the ESI calculation process, helps organizations avoid penalties, and supports employees in crisis.

HR professionals play a key role in managing ESIC. Our advanced systems make their task easier by automating deductions, generating e-challans instantly, and filing returns online with no manual errors. With complex tasks managed by our payroll software, HR teams can focus on employee well-being.

FAQs

What is the Full Form of ESI?

The full form of ESI is Employees’ State Insurance. It is a social security insurance scheme that provides medical and financial benefits to employees in times of need.

What is the Full Form of ESIC?

ESIC refers to the Employees’ State Insurance Corporation. ESIC is the governing body that manages the ESI scheme under the ESI Act, 1948.

What is the Mode of Payment of the ESI Contribution?

ESI contributions can be paid online through the official ESIC portal using net banking, UPI, debit/credit cards, or offline at designated banks such as SBI Bank or other authorized banks.

What is the ESI Limit?

Those employees whose gross monthly earnings do not exceed ₹21,000 (₹25,000 for employees with disabilities) are eligible for ESI benefits. This limit is set as per the ESIC guidelines.

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