Employee State Insurance Act (ESIC), 1948

Payal Purohit (HR Executive)

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 What is ESIC?

1. ESI stands for Employee State Insurance managed by the Employee State Insurance Corporation
which is an autonomous body created by the law under the Ministry of Labour and
Employment, Government of India. The scheme is managed by Employees’ State Insurance
Corporation, a government entity, that is a self-financing, social security, and labor welfare
organization.

2. The ESI Scheme is an integrated measure of “Social Insurance” come to the life through the
Employees’ State Insurance Act -1948. An Act to provide for certain benefits to employees in
case of sickness, maternity and employment injury and to make provision for related matters.

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 Applicability of ESIC Act:

• Act is applicable to the “Factories” employing 10 (Ten) or more persons irrespective of whether
power is used in the process of manufacturing or not.

• The Scheme is extended to Shops, Hotels, Restaurants and Cinemas including preview Theatre,
Road motor transport undertakings and Newspaper establishment employing 20 (Twenty) or
more persons.

• It is also applicable to Private Medical Institution and Educational Institutions employing 20

(Twenty) or more persons in certain states.

• The existing wage-limit for coverage under the Act, is INR 21,000/- per month (excluding
overtime, bonus, leave encashment) and INR 25,000 for people with disability. Employees earning
daily average wage up to Rs. 137 are exempted from ESIC contribution. However, employers will
contribute their share for these employees.

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Applicability of the Act

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ESI Contribution Share:
Employee’s ESI
Contribution

(0.75% of Gross
Salary) Total ESI
Contribution
(4% of Gross
Salary)

Employer's ESI
Contribution

(3.25% of Gross
Salary)

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Contribution and Benefit Period:
Collection of Contribution

• It is the employers responsibility to contribute to the ESI fund by deducting the employees’
contribution from wages and combining it with their own contribution.
• An employer is expected to deposit the combined contributions within 21 days of the last day of the
Calendar month. The payments can be made online or to authorized designated branches of the
State Bank of India and some other banks.

Contribution Period and Benefit Period

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

Contribution period Corresponding Cash Benefit period

Contribution Period Cash Benefit Period
1st April to 30th Sept. 1st Jan of the following year to 30th June
1st Oct to 31st March of the year following. 1st July to 31st December.
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Contribution Period and Benefit Period

After the commencement of a contribution period, even if the gross salary of an employee exceeds Rs.
21,000 monthly, the employee continues to be covered under ESI scheme till the end of that
contribution period. The contribution is deducted on the new salary.

Let us look at an example to understand this better.

If an employee’s gross salary increases in June from Rs. 18,000 (within ESI limit) to Rs. 22,000 (above
ESI limit), the deductions for ESI will continue to happen till the end of the ESI contribution period i.e.
September.
And the deduction amount for both the employee and employer will be calculated on the increased
gross salary of Rs. 22,000.
At the end of the contribution period, if the employee salary is more than the ESI limit, no further
deductions and contributions are required. The employee will still be covered under ESI till 30th June of
the following year.
Similar rules apply when an employees salary increases in the 2nd contribution period.

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What salary components are applicable to ESI deductions?
• ESI contributions (from the employee and employer) are calculated on the employee’s gross monthly salary.
• Gross salary is described as the total income earned by the employee, while working in their job, before any
deductions are made for health insurance, social security and state and federal taxes.
• For ESI calculation, the salary comprises of all the monthly payable amounts such as
– Basic pay,
– Dearness allowance,
– City compensatory allowance,
– House Rent Allowance (HRA),
– Incentives (including sales commissions),
– Attendance and overtime payments,
– Meal allowance,
– Uniform allowance and
– Any other special allowances.
• The gross monthly salary, however, does not include Annual bonus (such as Diwali bonus), Retrenchment
compensation, and Encashment of leave and gratuity.

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Procedure for ESI Registration:

• The company can apply for ESI registration by duly filling up and submitting the Employer's
Registration Form (Form-1).

• The employee can also access the PDF format of the form that is available on the website. Dully fill up
the form and submit the same to ESIC on the official website.

• Once the application and documents have been verified, a 17-digit registration number will be
provided to the organization. Once the company or organization has received their 17-digit number,
they can file their ESI filings.

• Employees who are registered under the ESI scheme will receive an ESI card after they have submitted
a form along with their photographs as well as details about their family members.

• Any new changes like the additions of employees, etc. will have to be intimated to the ESI.

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Documents Required for ESI Registration:
The following documents are needed when registering a company or establishment with ESIC:

1. Certificate of Registration (in case of a private limited company) of the company or establishment
2. License or a registration certificate which can be obtained under the Shops and Establishment
Act or the Factories Act
3. Certificate of Registration for every entity and for the commencement of production of factories
4. Detailed list of employees along with their monthly compensation
5. List of partners, shareholders, and directors of the company or establishment
6. The company's bank statements along with sufficient evidence about the commencement of
operations
7. Address proof and PAN Card of the business establishment or company

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 What is the penalty for late/non-payment of ESI?

• For each day by which the contribution of ESI is delayed, the registered employer is charged a simple
interest of 12% per annum. Non-payments, delays, and fraud activities in ESI payment may also lead to
imprisonment for a period of upto 2 years and a fine of INR 5,000. Furthermore, the ITA (Income Tax
Act) also disallows ESI contributions deposited after the stipulated date. The employers do not get the
deduction benefit of such contributions and end up paying income on it.

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 Social Security Benefits of ESIC:
Following are the benefits covered under ESIC Act 1948:

1. Medical Benefits: Full medical care is provided to an Insured person and his family members from the day
he enters insurable employment. There is no ceiling on expenditure on the treatment of an Insured Person or
his family member. 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/- .

2. Disability Benefit: 
a. Temporary disablement benefit (TDB) : From day one of entering insurable employment & irrespective of
having paid any contribution in case of employment injury. Temporary Disablement Benefit at the rate of
90% of wage is payable so long as disability continues.
 
b. Permanent disablement benefit (PDB) : 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

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Social Security Benefits of ESIC:
3. Maternity Benefit: ESIC helps an employee welcome their baby to a household which has been
showered with benefits. ESIC provides a total of 100% of the average daily wages for a period of to
26 weeks 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. Maternity Benefit for confinement/pregnancy is payable for
Twenty Six (26) weeks, which is extendable by further one month on medical advice at the rate of
full wage subject to contribution for 70 days in the preceding Two Contribution Periods.

4. Sickness Benefit: Sickness Benefit in the form of cash compensation at the rate of 70 per cent of
wages is payable to insured workers during the periods of certified sickness for a maximum of 91
days in a year. In order to qualify for sickness, benefit the insured worker is required to contribute
for 78 days in a contribution period of 6 months.

1. Extended Sickness Benefit(ESB) : SB extendable upto two years in the case of 34 malignant and
long-term diseases at an enhanced rate of 80 per cent of wages.

2. Enhanced Sickness Benefit : Enhanced Sickness Benefit equal to full wage is payable to insured
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persons undergoing sterilization for 7 days/14 days for male and female workers respectively
 Social Security Benefits of ESIC:
5. Unemployment Allowance: ESIC Provides monthly cash allowance for a duration of maximum 24 months in case
of involuntary loss of employment or permanent invalidity due to non-employment injury.

6. Dependent's Benefit: In case the employee meets with an untimely death due to an injury at the place of
employment, ESIC will provide monthly payments apportioned among the surviving dependents.

7. Other Benefits :

a. Funeral Expenses: An amount of Rs.15,000/- is payable to the dependents or to the person who performs last
rites from day one of entering insurable employment.
b. Confinement Expenses: An Insured Women or an I.P.in respect of his wife in case confinement occurs at a place
where necessary medical facilities under ESI Scheme are not available.
c. Vocational Rehabilitation: To permanently disabled Insured Person for undergoing VR Training at VRS.
d. Physical Rehabilitation: In case of physical disablement due to employment injury.
e. Old Age Medical Care: For Insured Person retiring on attaining the age of superannuation or under VRS/ERS and
person having to leave service due to permanent disability insured person & spouse on payment of Rs. 120/- per
annum.
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 Do's and Don’ts of ESI Scheme:
Some of the things to keep in mind are:

1. Pehchan/Smart Card acts as an employee's visa to their social security so it should be protected
from theft or damage.
2. An individual should ensure that they report a lost card to their Branch Office or Dispensary
immediately.
3. If an employee or worker who has an ESI Registration Number switches jobs, they should inform
the new employer of the same.
4. There are certain benefits which are provided based on the length of their contribution. So if the
employee or worker switches jobs and registers themselves using the same ESIC number, the
benefits which are related will be awarded to the employee.
5. Referral procedures should be taken seriously.
6. Follow the doctor’s instructions carefully.
7. The employee or worker should ensure that they get their Form 105 signed by their employer in
case the employee wishes to go on an outstation journey. This helps in case the employee or
worker needs to avail ESI facilities in another region.
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