Explained: ESI Calculation, ESI Contribution & Application

ESI Calculations

Let’s understand Employee State Insurance (ESI) Contribution

The Employee State Insurance (ESI) Act came into force in 1948 to ensure financial protection for employees and their families against unforeseen medical eventualities. The Employee State Insurance Corporation administers the act under the Ministry of Labour department.

Why ESI Contribution:

ESI is applicable when the minimum count of employees increases by more than 10 (in some states, it is 20) for all entities under the business and service category. ESI covers and gives social protection for employees and their family members against maternity, partial or permanent disablement, sickness and death due to employment injury.

Applicability of ESI Contribution:

  1. All employees whose wages do not exceed Rs.21,000 per month (Rs.25,000 for disabled employees) must register through their employer for the ESI scheme and contribute monthly.
  2. Suppose the company engages any labour or contractor who interns, deploying employees to work in the premises of the Principal employer (hiring employees indirectly falls in this category). In that case, the Principal employer must ensure that the contractor deducts and deposits the ESI contribution.
  3. If the contractor fails to deposit ESI, the Principal employer must ensure that the deposits are made, or they will be held liable. As the Principal employer engages the employee and is working for the Principal employer, and if something goes wrong in the work premises, the Principal employer must ensure the employee is covered under ESI.
  4. Any time any expenses are incurred by the registered employer on their premises, ESI is applicable. Repair and maintenance and labour-intensive work are some of the examples.
  5. ESI does not apply to expenses incurred on the purchase of goods.

ESIC Challan Payment

  1. All ESIC Challan payments are made through online and offline mode. Select the online mode and make the payment.
  2. Once the payment is made, it is directed back to the portal for the completion of a successful ESIC Payment and an ESIC Challan is generated.
  3. The employer deposits All ESIC contributions directly from his ESIC payment login at https://www.esic.in/ESICInsurance1/Revenueone/Monthly%20Contribution/echallan.aspx.
  4. ESIC Payment Challan is generated on the payment, which is kept for future reference and return filing requirements.

ESIC Contribution Rate:

  1. ESIC Employee’s Contribution Rate: A percentage of an employee’s monthly wage is deducted as their contribution towards ESI. The employee contributes 0.75% of their wages to the ESI fund. This amount is removed from the employee’s salary and deposited to the ESIC.
  2. ESIC Employer’s Contribution Rate: Employers also contribute to the ESI fund on behalf of their employees. The employer’s contribution rate is 3.25% of the employee’s wages.

ESIC Coverage and Benefits:

Various coverage and benefits are driven by the ESI Social Security Policy of the government, not limited only to the employee but also to their dependents. Some Key Benefits include:

  1. Medical Care and Benefits: ESI covers comprehensive medical care and benefits to the employee and their dependents. All medical services are included, and some of them are outpatient, inpatient, maternity, specialist consultation, and diagnostic services.
  2. Sickness Benefit: If an insured employee falls sick and cannot work, they receive cash benefits equivalent to 70% of their average daily wages for their incapacity and the period of out of job.
  3. Maternity Benefit: Female employees are entitled to maternity benefits, including paid leave for 26 weeks (extended to 52 weeks for some instances), along with cash benefits during the period of maternity.
  4. Disablement Benefit: The insured employee receives cash compensation if a work-related injury leads to temporary or permanent disablement.
  5. Dependent’s Benefit: If an insured person dies due to employment injury, their dependents receive a monthly payment of 90% of the employee’s wage.
  6. Private Hospoitals: Employee if not able to get treated due to any reasons can also take advantage by getting treated in the Private Hospitals on recommendation of the Government Doctors.

Administration and Compliance:

Employers are responsible for correctly deducting and depositing ESI contributions to the ESIC. Non-compliance with ESI regulations can result in penalties and legal repercussions. Some of the Penalties are:

  1. ESI is paid monthly on or before the 15th of the subsequent month
  2. ESI returns are filed twice in the year: first, for April to September by the 11th of November and second for October to March by the 11th of May.
  3. Under the ESIC Act, the penalty for late filing of return, any delayed payments, or wrong or fraudulent payments is a punishable offence, and a Rs 5,000 fine or a Jail term of up to two years can be ordered.
  4. An interest of 12% per annum is charged on the amount not or short paid for the ESIC
  5. Any delay beyond 6 months from the date of payment ESIC can recover damages @ 25% of the amount payable.


The Employee State Insurance (ESI) scheme is pivotal in providing social security and healthcare benefits to the employees and their dependant families in India. It ensures that workers have access to adequate medical care and financial assistance during times of need, fostering a healthier and more secure workforce. Our team at CFO Angle helps companies to ensure compliances for ESIC and our directors in their past corporate life have won cases to ensure right applicability of the act.

Understanding ESI contributions’ intricacies is crucial for  the employer (as a deductor) and employee (as a deductee)  to ensure compliance with the law and avail the benefits entitled under this social security scheme. As regulations may evolve over time, staying updated with the latest amendments and provisions related to ESI contributions in India is advisable.


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