What is ESI
ESI stands for Employee State Insurance. It is a statutory social security scheme run by the Employees' State Insurance Corporation under the Employees' State Insurance Act, 1948 (Act No. 34 of 1948). The scheme gives insured workers and their dependents medical care, sickness benefit, maternity benefit, disability cover, and dependent benefit, funded by monthly contributions from the employer and the employee.
For a covered establishment, ESI is not elective. Once the headcount and wage thresholds are crossed, registration and timely remittance are a legal obligation.
Who must register under ESI
The ESI Act applies to factories and establishments where 10 or more persons are employed. Employees whose gross monthly wages do not exceed Rs 21,000 are covered. For employees with disabilities, the ceiling is Rs 25,000. Both limits have been in force since 1 January 2017 and are published on the ESIC coverage page.
Section 1(4) of the Act covers factories in the first instance. Section 1(5) lets the appropriate government extend the Act by Gazette notification to other establishments, which is how shops, hotels, cinemas and similar businesses came under ESI. Because that extension is a state notification, the employee threshold for non-factory establishments varies. Check the notification for the state you operate in. Once an establishment is covered it stays covered, even if headcount later falls below the threshold.
| Parameter | Threshold |
|---|---|
| Minimum employees for applicability | 10 or more |
| Wage ceiling, general employees | Rs 21,000 per month, gross |
| Wage ceiling, employees with disabilities | Rs 25,000 per month, gross |
| Governing legislation | ESI Act, 1948 |
| Administering body | ESIC, Employees' State Insurance Corporation |
ESI contribution rates
The current contribution rates have been in effect since 1 July 2019, when the government reduced them to ease the load on both sides.
How to calculate ESI contribution
The calculation runs on gross wages, not on basic salary alone. That is the main difference from PF, which uses basic plus DA. Gross wages include basic salary, dearness allowance, house rent allowance, city compensatory allowance and other regular monthly allowances.
Employer ESI = Gross Wages × 3.25%
Total ESI = Gross Wages × 4.00%
Step by step example
Assume an employee with a gross monthly salary of Rs 18,000.
- Check eligibilityRs 18,000 is below the Rs 21,000 ceiling, so ESI applies.
- Employee contributionRs 18,000 × 0.75% = Rs 135
- Employer contributionRs 18,000 × 3.25% = Rs 585
- Total remittanceRs 135 + Rs 585 = Rs 720, deposited with ESIC by the 15th of the following month.
ESI contribution calculator
Enter an employee's gross monthly wages to see the deduction breakdown for both sides.
Basic, DA, HRA and other regular monthly allowances.
Contribution breakdown
Contribution periods
ESI contributions are tracked in two six month periods each year. The benefits an employee can draw correspond to the preceding contribution period.
| Contribution period | Corresponding benefit period |
|---|---|
| 1 April to 30 September | 1 January to 30 June, following year |
| 1 October to 31 March | 1 July to 31 December, same year |
What counts as gross wages for ESI
Included in the ESI wage base. Basic salary, dearness allowance, house rent allowance, city compensatory allowance, incentives paid monthly, meal allowances, and any other regular cash allowances paid each month.
Excluded from the ESI wage base. Annual bonus, travel and conveyance reimbursements, gratuity, and one time ex gratia payments.
When must contributions be deposited
Employers deposit ESI contributions to ESIC by the 15th of the following month. Contributions for April are paid by 15 May.
Section 39(5) of the ESI Act makes the principal employer liable for simple interest at 12 percent a year on any contribution not paid by the due date, running until the payment is actually made. ESIC can levy damages on the arrears as well, on top of that interest.
Registering a new employee under ESI
A new employee at a covered establishment must be registered with ESIC from the date of joining. The employer issues a temporary identity certificate until the permanent e-Pehchan card comes through. Medical benefits start from the first day of insurable employment, so the registration should not wait for the first payroll run.
ESI vs PF at a glance
PF and ESI both show on the same payslip, but they use different wage bases, different ceilings, and they exist for different reasons. An employee's PF and ESI figures will almost never be calculated from the same number.
| Parameter | ESI | PF |
|---|---|---|
| Calculated on | Gross wages, including basic, DA, HRA and regular allowances | Basic salary plus DA only |
| Wage ceiling | Rs 21,000 a month, Rs 25,000 for employees with disabilities | Rs 15,000 a month. Many employers contribute on actual basic instead |
| Employee rate | 0.75% of gross wages | 12% of basic plus DA |
| Employer rate | 3.25% of gross wages | 12% of basic plus DA, split between EPF and EPS |
| Purpose | Medical care, sickness, maternity and disability cover | Retirement savings and pension |
| Withdrawal | Not withdrawable. Benefits are drawn as services or cash allowances | Withdrawable on retirement, exit, or for specified purposes |
| Administered by | ESIC | EPFO |
The EPF rates of 12 percent each side, and the Rs 15,000 wage ceiling in force since 1 September 2014, are stated in this PIB release from the Ministry of Labour and Employment. For the PF side of the payslip, see the PF calculation guide or run the numbers in the PF calculator. Companies that run payroll with Offrd get both computed on every payslip from their correct wage bases.
Sources and official references
Every rate and threshold on this page is taken from a government source. The links below are the originals, so you can check them yourself rather than take ours.
- Employees' State Insurance Act, 1948, India Code. Section 1(4) and 1(5) applicability, Section 39(5) interest on delayed contributions.
- ESIC, Contribution. Employee 0.75 percent and employer 3.25 percent with effect from 1 July 2019, and the exemption for a daily average wage up to Rs 176.
- ESIC, Coverage. The Rs 21,000 wage limit and the Rs 25,000 limit for persons with disability, in force from 1 January 2017.
- Press Information Bureau, Ministry of Labour and Employment. EPF at 12 percent from each side and the Rs 15,000 wage ceiling, used in the ESI versus PF comparison above.
ESIC revises rates and limits by notification. Where a figure on this page differs from the ESIC portal, the portal is right. Tell us at service@offrd.co and we will correct it.