Employee State Insurance (ESI)

What Is Employee State Insurance (ESI)? A Guide for Employers

Employee State Insurance (ESI) is a comprehensive social insurance program established under the Employees’ State Insurance Act of 1948, designed to provide social security to employees against contingencies such as sickness, maternity, disablement, and death due to employment injury. It represents the first major social security legislation enacted in independent India after independence, marking a significant step toward socio-economic protection for the workforce.

The scheme functions as an integrated social security measure administered by the Employees’ State Insurance Corporation (ESIC), a statutory corporate body operating under the administrative control of the Ministry of Labor and Employment, Government of India. ESIC manages the ESI fund according to rules and regulations stipulated in the ESI Act 1948, ensuring proper implementation of benefits across the country.

ESI encompasses protection against health-related eventualities that workers typically encounter in their employment journey. These include medical expenses during illness, financial support during maternity leave, compensation for temporary or permanent disability, and benefits for dependents in case of occupational disease or death resulting from employment injury. The primary objective is to uphold human dignity during crises by preventing deprivation and social degradation while maintaining a productive workforce.

As a self-financing contributory scheme, ESI derives its funding from contributions made by both employers and employees. Currently, employers contribute 3.25% of an employee’s wages, while employees contribute 0.75%. These contributions form the financial foundation that sustains the entire program and enables it to provide comprehensive benefits to all insured individuals.

The ESI scheme has achieved significant coverage across India. Presently, it extends to 668 out of 778 districts nationwide. The program covers approximately 3.62 crore insured persons working in 22.32 lakh factories and establishments. When including family members of these insured persons, the total beneficiary count reaches approximately 13 crore individuals. To serve this vast beneficiary base, ESIC maintains an extensive network of 1,590 dispensaries, 165 hospitals and medical colleges, 610 branch offices, and 105 DCBOs throughout the country.

The scheme applies to various categories of establishments, including factories, shops, hotels, restaurants, cinemas, newspaper establishments, educational institutions, and medical institutions that employ 10 or more persons (20 or more in some states). However, only employees whose monthly wages do not exceed ₹21,000 (₹25,000 for persons with disabilities) are eligible for coverage under the ESI scheme.

Section 46 of the ESI Act outlines six principal social security benefits provided under the scheme: medical benefits, sickness benefits, maternity benefits, disablement benefits, dependants benefits, and funeral expenses. Additionally, the program offers vocational rehabilitation, physical rehabilitation, and unemployment assistance through initiatives like the Rajiv Gandhi Shramik Kalyan Yojana and Atal Beemit Vyakti Kalyan Yojana.

The administrative structure of ESIC features zonal divisions headed by Zonal Medical Commissioners and Zonal Insurance Commissioners, with five zones currently operating across India. Each state has a Regional Office typically headed by an additional commissioner or director-rank officer, further subdivided into Sub-Regional Offices covering several districts.

Who is covered under ESI?

ESI coverage extends to specific categories of establishments and employees based on criteria defined in the ESI Act. The scheme primarily applies to non-seasonal factories employing 10 or more persons. Furthermore, several state governments have extended coverage to various other establishments that meet the minimum employment threshold.

Establishments covered under the ESI Act include:

• Shops and commercial establishments
• Hotels and restaurants without manufacturing activity
• Cinema and preview theaters
• Road motor transport undertakings
• Newspaper establishments
• Private educational institutions
• Medical institutions including corporate hospitals, nursing homes, diagnostic centers, and pathological labs
• Contract employees and casual employees of municipal corporations/bodies

The Central Government has specifically extended coverage to establishments where it serves as the appropriate government, including those engaged in insurance business, non-banking financial companies, port trusts, airport authorities, and warehousing establishments employing 20 or more persons.

Notably, only employees whose monthly wages do not exceed ₹21,000 qualify for ESI coverage. This wage ceiling is higher for persons with disabilities, set at ₹25,000 per month. Employees earning above these thresholds are exempted from ESI contributions.

The geographical scope of ESI implementation is extensive, covering 668 districts across 36 states and union territories throughout India. This includes 565 fully notified districts and 103 partially notified districts where the scheme operates in district headquarters and prominent industrial centers.

Registration under the ESI scheme is mandatory for eligible establishments. Employers must register their factory or establishment within 15 days from the date of the Act’s applicability to them. The registration process involves logging into the ESIC Portal and providing essential details including the establishment name, address, principal employer’s name, bank account information, and PAN.

Upon successful registration, a unique 17-digit code number is automatically generated for the establishment. This code serves as the identification number for the registered factory or establishment under the provisions of the Act. Employers can also register branch offices, sales offices, or registered offices as sub-units through the ESIC Portal using their credentials and primary registration code.

The ESI scheme has achieved substantial coverage across India, currently applying to over 15.94 lakh factories and establishments nationwide, benefiting more than 3.10 crores of insured persons and their families. The total beneficiary count stands at approximately 12.03 crores.

The scheme operates as a self-financing program, primarily funded through contributions from employers and employees paid monthly as a fixed percentage of wages. State governments also contribute by bearing 1/8th of the cost of medical benefits provided under the scheme.

How do employer and employee contributions to ESI work?

The ESI scheme operates on a contributory basis, requiring financial input from both employers and employees to sustain its benefits. The collected funds create a self-financing system that provides social security and healthcare benefits to workers during uncertain times.

Current contribution rates

The Employees’ State Insurance Corporation (ESIC) periodically revises contribution rates. Effective July 1, 2019, the current ESI contribution rates stand at 3.25% of wages for employers and 0.75% of wages for employees. These percentages represent a reduction from previous rates to ease the financial burden on both parties while maintaining the scheme’s viability.

Notably, employees earning a daily average wage up to Rs. 176 are exempted from making their own contributions. Nevertheless, employers must still contribute their share (3.25%) for these low-wage employees, ensuring they remain covered under the scheme despite their exemption from personal contributions.

Wage ceiling and eligibility

The ESI scheme has established a wage ceiling that determines employee eligibility. Currently, only employees whose monthly wages do not exceed Rs. 21,000 qualify for mandatory ESI coverage. For persons with disabilities, this ceiling is higher at Rs. 25,000 per month.

The wage ceiling undergoes periodic revisions “to keep pace with rising cost of living and consequent wage hikes”. This adjustment ensures the scheme remains relevant and accessible to the intended beneficiary segment of the workforce.

For calculation purposes, “wages” encompass several components beyond basic salary. The wage calculation typically includes basic pay plus various allowances such as dearness allowance (DA), house rent allowance (HRA), medical allowance, city compensatory allowance, and other similar payments.

How to calculate contributions

The ESI contribution calculation is straightforward once the wage components are determined. The formula applies the designated percentages to the employee’s total monthly wages:

1. Employer’s Contribution = 3.25% × Total Monthly Wages
2. Employee’s Contribution = 0.75% × Total Monthly Wages
3. Total ESI Contribution = Employer’s Contribution + Employee’s Contribution

For instance, if an employee earns Rs. 20,000 per month, the calculations would be:

• Employer’s Contribution: 20,000 × 3.25% = Rs. 650
• Employee’s Contribution: 20,000 × 0.75% = Rs. 150
• Total ESI Contribution: Rs. 800

The employer bears the responsibility for both deducting the employee’s contribution from their wages and adding their own contribution. Subsequently, the employer must deposit the combined amount with the ESIC “within 15 days of the last day of the calendar month in which the contributions fall due”.

The ESI scheme divides each calendar year into two contribution periods of six months each, paired with corresponding benefit periods:

This structure means that contributions made during one six-month period create eligibility for benefits in the corresponding six-month benefit period.

What benefits does ESI provide?

The ESI scheme delivers a comprehensive set of benefits designed to protect workers during various life contingencies and medical emergencies. Section 46 of the ESI Act outlines six principal social security benefits available to insured persons and their families.

Medical and sickness benefits

Medical benefits provide complete healthcare to insured persons and their families from the first day of entering insurable employment. These benefits include full medical care with no ceiling on expenditurefor treatment. Moreover, retired and permanently disabled insured persons along with their spouses can access medical care by paying an annual premium of Rs.120.

Sickness benefit offers cash compensation at 70% of wages during periods of certified sickness for a maximum of 91 days in a year. To qualify, the insured person must have contributed for at least 78 days in the preceding six-month contribution period. The benefit is not payable for the first two days of sickness (waiting period) unless the spell begins within 15 days of an earlier spell for which sickness benefit was paid.

Extended Sickness Benefit applies to 34 specified long-term diseases, extending coverage up to two years at an enhanced rate of 80% of wages. Concurrently, Enhanced Sickness Benefit equal to full wages is available to insured persons undergoing sterilization procedures—up to 7 days for vasectomy and 14 days for tubectomy.

Maternity and disability benefits

Maternity benefits are payable at 100% of average daily wages. For women with two or fewer surviving children, benefits extend up to 26 weeks (with no more than 8 weeks preceding the expected date of confinement). Women with more than two surviving children receive benefits for 12 weeks (no more than 6 weeks before expected confinement). Commissioning mothers and adopting mothers are entitled to 12 weeks of benefits from the date the child is handed over.

Disability benefits come in two forms: Temporary Disablement Benefit provides 90% of wages for as long as the disability continues, applicable from the first day of insurable employment regardless of contribution history. Permanent Disablement Benefit offers monthly payments at 90% of wages based on the extent of earning capacity loss as certified by a Medical Board.

Dependents and funeral benefits

Dependants’ Benefit supports families of insured persons who die due to employment injury or occupational hazards. The benefit equals 90% of the deceased’s wage rate, apportioned among eligible dependants. The distribution follows a specific formula: widows receive 3/5th of the full rate until death or remarriage; widowed mothers receive 2/5th until death; each child receives 2/5th until age 25; and unmarried daughters receive 2/5th until marriage.

Funeral expenses amounting to Rs.15,000 are payable to dependents or the person who performs the last rites, available from the first day of entering insurable employment.

Unemployment and rehabilitation support

The Rajiv Gandhi Shramik Kalyan Yojana provides unemployment allowance to insured persons who lose their jobs due to retrenchment, establishment closure, or permanent invalidity (not less than 40%) arising from non-employment injury. Eligibility requires two years of insurable employment with 78 days of contributions in each contribution period. The allowance equals 50% of the last average daily wages for the first 12 months and 25% for the next 12 months.

Additionally, ESIC offers vocational rehabilitation to permanently disabled insured persons and physical rehabilitation for those disabled due to employment injuries. The Atal Beemit Vyakti Kalyan Yojana further supports covered employees with relief payments for up to 90 days, available once in a lifetime.

How to register on the Employer ESIC Portal

Registration on the employer ESIC portal is mandatory for eligible establishments within 15 daysfrom the date of the Act’s applicability. The process has been completely digitized, eliminating the need for physical document submission while streamlining compliance for businesses.

Step-by-step registration process

The ESIC registration procedure follows a systematic online approach:

1. Portal Login: Visit the ESIC official website and click on “Employer Login” on the home screen.
2. Account Creation: Select “Sign Up” and complete the registration form with basic establishment details.
3. Credential Confirmation: Upon submission, login credentials will be sent to the registered email address and mobile number.
4. Form Completion: Log in using the received credentials, select “New Employer Registration,” choose the appropriate “Type of Unit,” and submit.
5. Employer Registration Form-1: Complete all required fields including employer details, establishment information, and employee data.
6. Initial Contribution: After submission, pay the mandatory six-month advance contribution through the payment gateway.
7. Registration Confirmation: Upon successful payment, a system-generated Registration Letter (C-11) containing a unique 17-digit registration code is sent to the employer’s email.

Alternatively, employers can register through the Shram Suvidha portal or, for security and manpower agencies only, through the ESI web portal.

Documents required

Although physical document submission is unnecessary, employers must have the following information available while completing the online registration:

• Registration certificate under either Factories Act or Shops and Establishment Act
• Certificate of incorporation (company registration certificate or partnership deed)
• GST certificate
• Company’s Memorandum and Articles of Association
• Address proof (utility bills not older than three months, rental agreement, or property tax receipts)
• Comprehensive employee list with compensation details
• PAN card of the business establishment and all employees
• Canceled cheque of the company’s bank account
• List of company directors and shareholders
• Employee attendance register

Using employer ESIC login

Once registered, employers can access various functions through their ESIC login:

After receiving the 17-digit unique identification code, employers can log in to the portal using their credentials to manage ESI-related activities. Through this interface, employers can register new employees before employment commencement.

For employees with prior work experience, employers simply enter the existing insurance number. First-time employees must be registered with complete details including family members, residence information, and preferred dispensary for medical treatment.

Employers can likewise register branch offices, sales offices, or administrative offices as sub-units through the portal using their established credentials and primary registration code.

For technical issues, employers may contact the dedicated IT support team at ITCare@esic.nic.in or call 011-27552237.

Best practices for ESI compliance

Maintaining compliance with Employee State Insurance (ESI) regulations requires diligent attention to several key practices. Employers must first ensure their establishment is properly registered if employing 10 or more employees earning up to ₹21,000 per month (₹25,000 for disabled persons).

Importantly, employers should regularly update employee details in the ESIC portal and generate Employee Insurance Numbers for all eligible staff. Contributions (employer’s 3.25% and employee’s 0.75%) must be deposited before the 15th of each month.

Proper record maintenance is essential—keep documentation of wages, attendance, and contribution deductions for at least five years. Additionally, maintain Form 6 (Employee Register) for all ESIC-insured employees and promptly submit Form 5 for monthly contribution details.

Employers must file half-yearly returns between April-September and October-March before 11th November and 12th May respectively. For contractors, verify they possess valid ESI codes and obtain compliance documents before processing payments.

Conduct periodic internal compliance audits to identify and address any gaps or errors. Educate employees about their ESI benefits, including medical care, sickness benefits, and maternity leave entitlements.

Remember, late payments attract 12% annual interest, while non-compliance penalties range from ₹5,000 to ₹25,000. Promptly report any workplace accidents using Form 16 within 24 hours.

Key Takeaways

Understanding ESI compliance is crucial for employers to protect their workforce while avoiding costly penalties and ensuring smooth business operations.

• Mandatory registration required: Establishments with 10+ employees earning up to ₹21,000 monthly must register within 15 days of ESI Act applicability

• Contribution rates are fixed: Employers contribute 3.25% and employees contribute 0.75% of wages, with payments due by the 15th of each month

• Comprehensive benefits coverage: ESI provides medical care, sickness benefits at 70% wages, maternity benefits at 100% wages, and disability compensation

• Digital registration process: Complete online registration through ESIC portal eliminates physical paperwork while requiring advance six-month contribution payment

• Strict compliance penalties: Late payments incur 12% annual interest, while non-compliance attracts fines ranging from ₹5,000 to ₹25,000

The ESI scheme serves as India’s foundational social security program, covering over 3.6 crore workers across 668 districts. Proper compliance not only fulfills legal obligations but also demonstrates commitment to employee welfare and business sustainability.

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