ESI Calculation: Formula, Rates and Worked Examples
Table of Contents
ESI calculation is simple once you know the two rates. You deduct 0.75% of gross wages from your employee. You add 3.25% from the company. Together, that makes 4% of gross wages, payable to ESIC every month for every employee earning up to Rs. 21,000.
The difficulty is never the arithmetic. It is knowing which wages enter the calculation, which employees stay covered when their salary rises, and which employees pay nothing at all. This guide covers each of those, with worked examples you can apply to your own payroll register.
Why Getting ESI Calculation Right Matters
A wrong ESI calculation is not a rounding error. It can lead to prosecution.
Under Section 85(i)(a) of the ESI Act, 1948, an employer who deducts the employee’s share and fails to deposit it faces imprisonment of not less than one year, extending to three years, plus a fine of Rs. 10,000. For other contribution defaults, Section 85(i)(b) prescribes imprisonment of not less than six months and a fine of Rs. 5,000.
Late payment also attracts simple interest at 12% per annum. On top of that, ESIC can recover damages under Section 85B.
Accurate ESI calculation protects your organisation from all three. It also protects your employees, because an unpaid contribution can block a genuine medical or maternity claim.
What is Employees’ State Insurance?
Employees’ State Insurance is India’s oldest social security scheme for workers. The Employees’ State Insurance Act, 1948 created it, and the Employees’ State Insurance Corporation (ESIC) runs it under the Ministry of Labour and Employment.
The scheme covers your employee and the family. It pays for medical treatment, sickness, maternity, disablement, dependants’ support and funeral costs.
ESI is a contributory scheme. Your employee pays a small share, your organisation pays a larger one, and ESIC pools both to fund the benefits.
Status under the Code on Social Security, 2020
The Code on Social Security, 2020 came into force on 21 November 2025 and subsumes the ESI Act. ESIC has already notified expanded definitions of “dependant” and “family” under the Code.
Until the Central Government notifies the full rules and regulations under the Code, the existing ESI contribution rates, wage ceiling and filing procedure continue unchanged. Your ESI calculation method does not change. Every figure in this guide reflects the position that applies today.
Who Must Pay ESI?
Two separate tests decide ESI liability. Your establishment must be covered, and your employee must fall within the wage ceiling. Both must be satisfied.
Establishment Coverage Threshold
A non-seasonal factory is covered under Section 2(12) of the Act once it employs 10 or more persons.
For shops and other establishments, Section 1(5) sets the threshold at 20 or more persons. State governments may lower it. According to ESIC’s Standard Note as on 01/01/2025, 33 states and union territories have reduced the threshold for shops and establishments to 10 or more persons. Maharashtra and Chandigarh retain the higher figure of 20.
Check the notification for your own state before you conclude that your establishment is exempt. The headcount includes every person on the rolls, whether permanent, temporary, casual or contractual, regardless of what each one earns.
Once your establishment is covered, it stays covered even if the headcount later falls below the threshold.
Employee Wage Ceiling
Your employee comes under ESI when gross monthly wages do not exceed Rs. 21,000. For an employee with disability, the ceiling is Rs. 25,000 per month.
The Rs. 176 Daily Wage Exemption
This is the rule payroll teams miss most often. ESIC exempts an employee whose average daily wage is up to Rs. 176 from paying the employee’s share.
Your organisation must still deposit its own 3.25% for that employee. The exemption removes the employee’s 0.75%, not the employer’s liability.
Section 72 of the Act also bars you from reducing an employee’s wages to recover your own contribution. Deducting the employer share from an employee’s salary is a punishable offence.
ESI Calculation Formula
The ESI calculation formula works on gross monthly wages, not on basic salary alone.
- Employee’s share = Gross wages x 0.75%
- Employer’s share = Gross wages x 3.25%
- Total ESI contribution = Gross wages x 4%
These rates apply with effect from 01/07/2019. Before that date, the employer paid 4.75% and the employee paid 1.75%.
Which Wages Enter the ESI Calculation
Getting this list right matters more than the percentages.
Include in gross wages
- Basic pay
- Dearness allowance
- House rent allowance
- Conveyance and city compensatory allowance
- Medical and other regular monthly allowances
- Overtime wages
- Any other regular cash payment made at intervals of up to two months
Exclude from gross wages
- Annual bonus
- Gratuity
- Leave encashment
- Retrenchment compensation
- Employer’s contribution to PF and ESI
- Washing allowance paid for uniform upkeep
One distinction causes most disputes. You include overtime when you calculate the contribution. You exclude overtime when you test whether the employee crosses the Rs. 21,000 ceiling. An employee earning Rs. 20,000 plus Rs. 2,000 overtime stays covered, and your ESI calculation runs on the full Rs. 22,000. Accurate attendance records therefore feed straight into the ESI contribution you deposit.
How to Calculate ESI with Examples
Three scenarios cover almost every case your payroll software will meet.
Example 1: Standard Monthly ESI Calculation
Mr. Rajesh Khanna earns gross wages of Rs. 19,000 per month.
| Contributor | Rate | Calculation | Amount |
|---|---|---|---|
| Employee | 0.75% | 19,000 x 0.75% | Rs. 142.50 |
| Employer | 3.25% | 19,000 x 3.25% | Rs. 617.50 |
| Total | 4.00% | 19,000 x 4% | Rs. 760.00 |
You deduct Rs. 142.50 from his salary and add Rs. 617.50 from company funds. You deposit the total ESI contribution of Rs. 760 with ESIC. ESIC rounds the contribution to the next higher rupee, so check your challan figure before you pay.
Example 2: Wages Cross Rs. 21,000 Mid-Period
Mrs. Rachna Shah earns Rs. 20,000 per month. Her increment takes her to Rs. 23,000 from July.
She does not exit ESI in July. Her ESI contribution continues until 30 September, the end of that contribution period.
| Month | Gross wages | Employee 0.75% | Employer 3.25% |
|---|---|---|---|
| June | Rs. 20,000 | Rs. 150.00 | Rs. 650.00 |
| July | Rs. 23,000 | Rs. 172.50 | Rs. 747.50 |
| August | Rs. 23,000 | Rs. 172.50 | Rs. 747.50 |
| September | Rs. 23,000 | Rs. 172.50 | Rs. 747.50 |
From 1 October she leaves the scheme. She still draws benefits until 30 June of the following year, because the contribution period she completed carries its full benefit period.
Example 3: Employee below the Rs. 176 Daily Wage
Mr. Suresh Patel earns an average daily wage of Rs. 170.
He pays nothing. Your organisation still deposits an ESI contribution of 3.25% of his wages. Payroll teams that apply a flat 0.75% to every covered employee deduct money they should not have deducted, which the employee can dispute, and deducting the employer’s share is a punishable offence.
Contribution Period and Benefit Period
ESI runs on two fixed six-month cycles. The ESI contribution you pay in one period funds the benefits your employee claims in the matching period.
| Contribution period | Corresponding benefit period |
|---|---|
| 1 April to 30 September | 1 January to 30 June of the following year |
| 1 October to 31 March | 1 July to 31 December of the same year |
This is why Mrs. Shah keeps contributing until September. Once an employee starts a contribution period in the scheme, that employee completes the period in the scheme, regardless of any salary revision.
ESI Benefits Your Employees Receive
Your contribution buys a genuine benefit package. The figures below come from ESIC.
| Benefit | What your employee receives | Qualifying condition |
|---|---|---|
| Medical benefit | Full medical care for the employee and family, with no ceiling on treatment cost | From day one of insurable employment |
| Sickness benefit | 70% of average daily wages for up to 91 days across two consecutive benefit periods | 78 days of contribution in the corresponding contribution period |
| Maternity benefit | 100% of average daily wages for 26 weeks | 70 days of contribution in the two preceding contribution periods |
| Temporary disablement benefit | 90% of wages for as long as the disability continues | From day one, for employment injury |
| Permanent disablement benefit | 90% of wages monthly, in proportion to the loss of earning capacity certified by a Medical Board | Employment injury |
| Dependants’ benefit | 90% of wages monthly, shared among dependants. The widow receives it until death or remarriage, children until age 25 | Death caused by employment injury or occupational disease |
| Funeral expenses | Actual cost up to Rs. 15,000, paid to the eldest surviving family member | On the death of an insured person |
| Atal Beemit Vyakti Kalyan Yojana | 50% of average daily wages for up to 90 days, once in a lifetime, on involuntary unemployment | Contribution and service conditions apply. Confirm the current extension period on the ESIC portal |
Note the wording on dependants’ benefit. It applies to death caused by employment injury, not to every death during service.
How to Register, Pay and File
Registration, monthly payment and the half-yearly return form one compliance chain, much like the PF filing cycle you already run. Missing any link creates the same penalty exposure.
Step 1: Register Your Establishment
- Visit the ESIC portal and select employer registration.
- Complete Form 1, the Employer’s Registration Form, online.
- Upload your business, address and employee details.
- Receive a 17-digit employer code number after verification. Every challan and return uses this code.
- Register each employee, who then receives an insurance number and an ESIC card.
You must register within 15 days of the date your establishment becomes covered.
Step 2: Keep the Registration Documents Ready
- Address proof of the business
- PAN card of the business
- Details of directors, partners or shareholders
- Licence under the Factories Act or the state Shops and Establishments Act
- Certificate of incorporation, memorandum and articles of association, or the partnership deed
- Employee list with the salary structure of each person
- Cancelled cheque and bank account details
Step 3: Pay the Monthly Contribution
Deposit the combined employee and employer ESI contribution within 15 days of the last day of the calendar month in which it fell due. Contribution for August is therefore due by 15 September.
Log in to the ESIC portal, select monthly contribution, enter the wage details, generate the challan and pay online. Net banking, UPI and cards all work. Designated branches of the State Bank of India and other authorised banks accept offline payment.
File a NIL declaration in any month with no covered employee. Silence is treated as default.
Step 4: File the Half-Yearly Return of Contribution
Regulation 26 requires the Return of Contribution in Form 5 within 42 days of the end of each contribution period.
| Contribution period | Return due date |
|---|---|
| 1 April to 30 September | 11 November |
| 1 October to 31 March | 12 May |
Paying the monthly contribution does not file the return. Treat them as two separate obligations in your compliance calendar.
Penalties, Interest and Damages
| Default | Consequence | Provision |
|---|---|---|
| Late payment of contribution | Simple interest at 12% per annum for the delay period | Regulation 31A |
| Delayed or non-payment | Damages recoverable by ESIC, graded by the length of the delay, up to 25% per annum | Section 85B, Regulation 31-C |
| Failure to pay the employee’s share already deducted | Imprisonment of not less than one year, up to three years, and a fine of Rs. 10,000 | Section 85(i)(a) |
| Other contribution defaults | Imprisonment of not less than six months, up to three years, and a fine of Rs. 5,000 | Section 85(i)(b) |
| Repeat offence after conviction | Imprisonment up to two years and a fine of Rs. 5,000. For repeat non-payment of contribution, two to five years and a fine of Rs. 25,000 | Section 85A |
| Reducing wages to recover the employer’s share | Punishable offence | Section 72 |
Sound statutory compliance practice keeps every one of these off your desk.
How Employees Check ESI Claim Status Online
Share these steps with your team through your employee self service portal.
- Open the UMANG app on your phone.
- Search for ESIC and select claim status.
- Enter your registered mobile number and the OTP.
- Enter your insurance number, also called the IP number.
- Submit the second OTP to view the current status of the claim.
Conclusion
ESI calculation itself is easy: 0.75% from your employee, 3.25% from your company, 4% in total on gross wages. What trips teams up is everything around that sum. Whether your establishment is covered at 10 employees or 20 depends on your state. An employee earning up to Rs. 176 a day pays nothing, though your 3.25% still applies. Overtime counts when you calculate the contribution but not when you check the Rs. 21,000 limit. And an employee whose salary rises mid-period stays in the scheme until that period ends.
Get those four rules right and the rest is arithmetic. Get them wrong and the cost is real, because late or short payment brings 12% interest, damages, and in serious cases prosecution.
Keep two dates in your compliance calendar: the contribution by the 15th of every month, and the Form 5 return by 11 November and 12 May. Running this by hand across a large headcount is where mistakes creep in, which is why factoHR’s payroll software applies the correct ESI calculation to every wage structure, generates the challan, and files the return without rework.
Frequently Asked Questions
Is ESI Calculation Done on Gross Salary or Basic Salary?
ESI calculation uses gross monthly wages, not basic salary. Gross wages include basic pay, dearness allowance, house rent allowance, conveyance, and other regular monthly allowances. They also include overtime. They exclude annual bonus, gratuity, leave encashment and retrenchment compensation.
What Happens if an Employee’s Salary Crosses Rs. 21,000 Mid-Year?
The employee continues to contribute until the end of the running contribution period. If the increase falls in July, contributions run until 30 September. If it falls in November, they run until 31 March. The employee then keeps drawing benefits for the whole of the matching benefit period.
Does an Employee Earning Rs. 170 a Day Pay ESI?
No. ESIC exempts an employee whose average daily wage is up to Rs. 176 from the employee’s share. Your organisation must still deposit its 3.25%. You cannot recover that amount from the employee, because Section 72 of the Act prohibits it.
What is the ESI Wage Limit for Employees?
The limit is Rs. 21,000 gross per month for most employees, and Rs. 25,000 per month for an employee with disability. An employee earning above the applicable limit at the start of a contribution period stays outside the scheme for that period.
What are the Current ESI Contribution Rates?
The ESI contribution rate is 0.75% of gross wages from the employee and 3.25% from the employer, a total of 4%. These rates took effect on 01/07/2019, replacing the earlier 1.75% employee and 4.75% employer rates.
By when Must the ESI Contribution be Deposited?
Within 15 days of the last day of the calendar month in which the contribution fell due. The half-yearly Return of Contribution in Form 5 is separate, and falls due on 11 November for the April to September period and 12 May for the October to March period.
Is ESI Applicable to a Company with 10 Employees?
For a non-seasonal factory, yes. For a shop or other establishment, it depends on your state. Section 1(5) sets the threshold at 20, and 33 states and union territories have reduced it to 10. Maharashtra and Chandigarh still apply 20. Verify the notification for your state.
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