Employees State Insurance, or ESI Calculation, is an insurance programme offered to employees to help them through difficult and uncertain times. It is a contributory fund covered by the ESI Act of 1948 and managed by the Employee State Insurance Corporation.
Employer and employee contributions are included in this fund, which will later provide insurance and monetary benefits.
All businesses with more than 10 employees must comply with the ESI Act and maintain the ESI fund, according to the ESI Act. Except as otherwise provided by the Act, all factories, stores, and establishments are subject to the ESI Act. Additionally, employees are only protected if their monthly salaries are under Rs. 21,000 and their employer is ESI-covered.
How are Wages defined as per the ESI Act?
Based on the employee’s wages, both the employer and the employee must contribute to ESI. Some items are included and some are excluded when determining eligibility and the wages on which the ESI contribution should be calculated.
The list of items to consider and omit when calculating ESI on a salary is provided below.
In a recent ruling (dated March 8, 2021), the Supreme Court declared that transportation or travel expenses are not considered ESI pay. Therefore, employers are required to exclude the conveyance allowance from ESI contributions and from computing the Rs. 21,000 monthly ceiling limit.
You are only affected if you use custom salary structures that incorporate the “Conveyance Allowance” allowance.
According to the ESIC statute of 1948, the employer’s percentage contribution is set at 3.25% of wages, while the employee’s percentage contribution is set at 0.75% of wages.
ESI calculation formula
Every month, ESI is based on gross income, minus any employer contributions to PF/ESI that may have been factored into the employee’s CTC.
The basic pay and the allowances (DA + HRA + Medical + City Compensatory Allowance, etc.) are added to determine the salaries.
How to calculate ESI with an example
Let’s assume that Mr. X’s computed salary under the ESI Act of 1948 are INR 20,000. The contributions will then be determined using the following ESI calculation formula.
The employer must deposit the entire contribution, or Rs. 800, to the corporation within the allotted period after computing the contributions and deducting Rs. 150 from Mr. X’s pay.
Collection of ESI contribution
Every month, the employer is compelled to withhold the employee’s contribution from their paycheck in addition to his own. Within 15 days after the last day of the month in which it was deducted, this contribution amount (employer’s contribution plus employee’s contribution) must be submitted with the corporation.
ESIC (Employees’ State Insurance Corporation of India) has granted permission to SBI and a few other banks to collect money on their behalf.
What are Contribution Period and Benefit Period?
The ESI plan divides the year into two contribution periods, each lasting six months. The following year’s benefit period corresponds to these contribution periods. In other words, the employee receives benefits for the contribution made during the first six months over the subsequent six months (benefit period).
Employees who earn more during the contribution period than the Rs. 21,000 threshold limit benefit from this provision.
Let’s now examine the advantages for employees in the event of a pay rise.
Let’s assume that Mr. X earned Rs. 18,000 in May 2021. From June 2021, it increased to Rs. 23,000. In this instance, the ESI contribution is computed using 18,000 for April through May and 23,000 for June through September.
As a result, the employees contribute more, which is advantageous. However, the employee loses eligibility for the ESIC act after September, when the contribution period expires.
However, the employee receives the benefit from 1 January to 30 June, which corresponds to the benefit period.
Advantages of Registering under the ESIC Act
In order to protect employees and their dependents in the event of a medical emergency, disability, death, etc., the ESIC plan was established as a social security programme. The ESIC programme offers a lot of advantages.
Benefits for Employees
Medical Benefits: The Employee State Insurance Corporation covers the employees’ medical costs and hospital bills as part of their provision of medical benefits. Additionally, it covers the employee’s family’s medical expenses.
Disability Benefit: Employees who become temporarily or permanently disabled while working receive their monthly wage from ESIC. If an employee is temporarily disabled, they are paid their regular monthly salary at that time; if they are permanently disabled, they are paid their regular monthly salary for the rest of their lives.
Maternity Benefit: ESIC offers benefits to pregnant women, covering 100% of wages for 26 weeks following the start of labour and for an additional 6 weeks in the event of a miscarriage. And 12 weeks of pay are given if an employee adopts a child.
Sickness Benefit: ESIC pays employees 70% of their monthly salary in the event of a medical leave, up to a maximum of 91 days per year.
Unemployment Allowance: ESIC offers a cash allowance to the employee for a maximum of 24 months in the event of involuntary non-employment or permanent incapacity as a result of a non-employment injury.
Benefits for Employee’s Dependents
If the employee dies at the place of work due to an injury, ESIC provides the following benefits to their dependents –
- Constrictions Costs
- Funeral costs
- Vocational Instruction
- Under the Rajiv Gandhi Shramik Kalyan Yojana (RGSKY), physical rehabilitation
- skill training
ESI return filing
ESI returns must be filed by the businesses that have registered under the ESIC Act of 1948. Employers can download Form 1 in PDF format from the ESIC website, fill it out, and submit it online.
Deadlines for Filing ESI
The following are the due dates for filing ESI returns for both periods:
for the 1 April through 30 September – 12 November contribution period
For contributions made between 1 October and 31 March – 12 May
Documents required for ESI registration
Every establishment covered by the Act is required to register with ESI in Salary in order to ensure compliance with the ESIC Act, 1948 and that the employees take advantage of its benefits. The list of paperwork needed to register for ESI is provided below.
- Address proof of the business
- Business PAN Card
- Details about shareholders, partners and directors.
- Business licences
- Employee details and the details of their salary structure.
- Bank account details
- Memorandum of Association, Article of Association, the partnership deed or other business deeds.
Click Here For More Information About – What Is Health Insurance
Penalties for Non-payment of Employee Contribution
- The employer is in charge of deducting both the employee’s and the employer’s contribution from the employee’s wage for ESI.
- The ESI legislation considers it a serious infraction if the employee’s contribution is deducted from their pay but not paid by the employer.
- Any failure to pay, any late payment, or any fake payment is punishable by up to two years in prison and a fine of Rs. 5000.
FAQ About ESI Calculation
1. How is ESI calculated from salary?
The basic pay and the allowances (DA + HRA + Medical + City Compensatory Allowance, etc.) are added to determine the salaries. For further information, please see the blog post’s sample.
2. What is the ESI limit?
According to the Employees State Insurance Act of 1948, the minimum wage is Rs. 21,000. Basic pay and other benefits, including commission, HRA, DA, and medical allowance, are added up to arrive at this total.
3. How do I calculate ESI?
On the basis of the employees’ gross salaries, ESI is determined. According to the ESI Act, the contributory fund, which is then utilised to provide insurance cover for the employees in difficult times, is funded by the employer contributing 3.25% of the earnings and the employee contributing 0.75% of the wages.
4. What are the benefits of ESI?
The following are some advantages of ESI: 1. In the event of a medical leave, a sickness benefit at 70% of salaries is granted for a maximum of 91 days. 2. Health insurance for workers and their families 3. Cash payments to expectant mothers 4. If an employee passes away while working, dependents receive 90% of their wages. 5. Cash benefits for up to 24 months in the event of temporary disability and lifetime benefits in the event of permanent disability on the job
5. What are wages under the ESI Act?
Wages are defined as compensation given to an employee in cash under the ESI Act. It covers any legal payment made to an employee during a legitimate strike, lockout, or allowed leave of absence. It also includes any further compensation received at intervals no longer than two months, if any. However, it excludes any contributions made by the employer to pension or provident funds, as well as any travel expenses, gratuities, and payments made to employees to cover extra costs related to their employment.
6. What is the contribution under the ESI Act?
Currently, the company contributes 3.25% of the earnings provided to/payable for the employees, while the employee contributes 0.75% of their pay. Employees are free from making their portion of the contribution if their average daily remuneration is less than Rs. 176. Employers will, however, make their portion of the contribution for workers earning up to Rs. 176 per day.
7. What are the benefits for which ESI contribution can be claimed?
The following benefits are available to employees: medical, sickness, maternity, dependent’s, disability, and funeral expenditures.
8. What is the mode of payment for the ESI contribution?
Following proper registration, the employer submits monthly contributions for each of its employees via the ESIC portal
9. How much is the ESI cap?
The Employees State Insurance Act of 1948 specifies a ceiling of INR 21,000 for ESI coverage.
How to Check Claim Status Of ESI Online?
Below are the steps mentioned to check the ESI claim status online:
- Open the UMANG App on your smartphone or download it.
- Click “Get OTP” after entering the IP address or the ESIC Insurance Number.
- Click “Submit” after entering the OTP that will be delivered to the reference phone number.
- Select ‘Claim Status’ from the services list to continue.
- You can check the status of any claims you’ve filed or use the advanced search to find out more information if you’ve submitted any.
Consequences of Employee Contribution Non-Payment or Late Payment
- The sum deducted as an employee contribution from an employee’s pay is seen as having been handed to the employer. As a result, it is the employer’s responsibility to make sure that the contribution is placed in salary with ESI.
- The ESI Act makes it illegal to pay an employee’s contribution that was withheld from their pay late or not at all.
- Under the ESI Act, failure to pay, paying beyond the due date, or making false payments is punished by up to two years in prison and a fine of Rs 5,000.
Consequences for Employers When ESI in Salary is Delayed
Employers who fail to make contributions by the deadline outlined in the rule will be charged simple interest at a rate of 12% per year for each day of lateness or failure to make payments.
Contribution Period and Benefit Period
The contribution period for the ESI plan is 6 months. Consequently, a year has two contribution periods. Additionally, there is a 6-month-long benefit period that corresponds to each contribution period. The contribution periods and associated benefit periods are listed below:
- The cash benefit term for the contribution period of 1 April to 30 September is 1 January to 30 June of the following year.
- The cash benefit period for the contribution period, which runs from 1 October to 31 March of the following year, is 1 July to 31 December.
The concept of the contribution period is advantageous to an employee whose income increases above the threshold.
For instance, if your pay was INR 20,000 in May 2022, it will increase to INR 23,000 starting in June 2022. For ESI calculation reasons, the contributions up until September 30, 2022, will be taken into account on the amended salary of INR 23,00. After then, you won’t be eligible for the ESI contribution. since INR 21,000 is the salary threshold. You will, however, be qualified for the corresponding benefit period, which runs from 1 January 2023 to 30 June 2023.
Employee State Insurance (ESI) is a social security programme that covers workers in businesses that meet the requirements of the ESI Act. Both the employer’s and the employee’s contributions are included in the ESI contribution for an employee.
The contribution rates are set and periodically updated. The employer currently contributes 3.25% of the employee’s salary towards ESI. While the employee contributes 0.75% of their salary towards ESI.
Additionally, employees whose daily average pay is up to INR 137 are exempt from the contribution payment. Employers must, however, make their contribution to these workers.