So, let’s start directly with what is ESI?
ESI Scheme is the biggest self-insurance scheme for workers with a salary of less than ₹21,000. It supports these workers in case of disablement, sickness, maternity, death, etc. Such events of sickness, disablement, etc., can create a lot of hardships for employees. Thus, ESI Scheme helps them cover loss of income and other medical and even funeral costs.
What Is ESI?
ESI or Employee State Insurance Scheme is a social security self-insurance scheme for workers with a salary less than ₹21,000.
Regulated by the ESI Act 1948, it was the first significant act of independent India for workers’ social security. It ensures them monetary benefits in case of disablement and death.
If an employee gets disabled while at work, this self-insurance scheme provides the employee cash benefits to compensate for the loss of pay and medical costs.
But suppose the employee, unfortunately, dies due to their work. In that case, this scheme provides the cash benefit to the employee’s nominee, which is usually a family member of the family.
Being a self-insurance scheme, employee and employer both contribute a part of the salary to the ESI fund under the employee’s name. This fund is then disbursed to the employee when need be. ESI contribution is important payroll compliance like PF, TDS, etc.
How Does ESI Work?
Both employers and employees contribute specific amounts to the employee’s ESI fund.
There are two contribution and two benefit periods separated by three months.
Contribution Period
Respective Benefit Period
1st April to 30st September
Following 1st January to 30th June
1st October to next 31st March
1st July to 31st December
Let’s understand with an example. The contributions are made for six months from 1st April to 30th September. Now this accumulated benefit can be used by the employee between the respective benefit period, i.e., 1st January to 30th June, after which the benefit expires.
A similar cycle happens for the next six-month contribution and benefit period.
Which Entities Are Covered Under ESI?
All factories, businesses, and organisations that had ten or more employees employed even for a single day in the last year fall under the umbrella of this scheme.
Some examples of entities that come under the ESI scheme are:
Hotels
Cinemas
Road Transport
Newspaper
Shops
Educational or Medical Institutions
Shops, etc.
It is the responsibility and obligation of employers to enrol their qualifying employees into the scheme.
Who Are Entitled To ESI Benefit?
Not all workers working in the above industries are entitled to the benefits of this scheme. Only employees who work in the above entities and fulfil the below conditions can benefit from this scheme.
An employee must earn a wage of up to ₹21,000/month,
While an employee with some incapacity must make up to ₹25,000/month.
The ESI scheme aims to ensure that monetary demands of death and disablement do not push workers below the poverty line and protect them from social degradation. It provides social security and helps them sail through tough times.
How Is ESI Calculation Done?
ESI is calculated over the employee’s gross salary. The employer’s ESI contribution is 3.75% of the employee’s salary, and the employee’s contribution is 0.75% of his salary. So, this makes the total contribution 4% of the gross salary.
Let’s see how ESI calculation is done?
First, calculate the gross salary.
Gross Salary = Basic Pay + Dearness Allowance + City Compensatory Allowance + HRA + Allowances like Meal, uniform, etc. + Special Allowance + Overtime And Arrears + Incentives.
Now, the employer’s contribution = (3.25/100) * Gross Salary
And the employee’s ESI contribution = (0.75/100) * Gross Salary
The employer has to submit this total of 4% to ESIC within 15 days of the end of the month in which the contribution was made.
ESI scheme, in a nutshell, is an appreciable scheme by the government for the safeguarding of the interests of workers.