How is ESI Calculated?

employee state insurance

What is ESI?

Employees’ State Insurance Act, 1948 (ESI Act) is social security legislation aimed at providing benefits to employees in case of sickness, maternity, employment injury, and certain other related matters. Under this self-financing health insurance scheme, funds are primarily built out of contributions from employers and employees.

Applicability

The employee strength required for ESI registration for factories is 10 or more for PAN India. For establishments, this threshold is 10 or 20 depending on the state.  

 

S.no 

State

Minimum employees to be registered for establishment

1

Himachal Pradesh

20

2

Jammu and Kashmir 20
3 Jharkhand 

10

4

Kerala 10

5

Madhya Pradesh 20
6 Maharashtra

20

7 Manipur

20

8

Meghalaya 20
9 Mizoram

20

10

Nagaland 20

11

Orissa

10

12 Pondicherry 

10

13

Punjab 10
14 Rajasthan

10

15

Sikkim 20
16 Tamil Nadu

20

17

Tripura 10
18 Uttar Pradesh

20

19

Delhi 10
20 Karnataka

10

21

West Bengal 10
22 Andhra Pradesh

10

23

Arunachal Pradesh 20
24 Assam

20

25

Bihar 10
26 Chhattisgarh

10

27

Goa 20
28 Gujarat

10

29

Haryana 10
30 Uttarakhand

10

31

Chandigarh  20
32 Daman and Diu

20

33

Dadra and Nagar Haveli  20
34 Andaman and Nicobar

20

35

Lakshadweep 20
36 Outside India

20

 

Contributions

The employees contribute 0.75% of their gross salary and employers contribute 3.25% of the employee Gross Salary.

Gross Salary includes:

  • Basic Pay
  • Dearness Allowance
  • City Compensatory Allowance
  • House Rent Allowance
  • Attendance & Overtime Pays
  • Meal Allowance
  • Uniform Allowance
  • Bonuses, Incentives, and other Special Allowances.

 Some sample ESI Calculations

Sample 1:

If the gross salary of an employee is 8000 per month then,

  1. The employee contribution would be 0.75% x 8000 which is equal to INR 60
  2. The employer contribution would be 3.25% x 8000 which is equal to INR 260

Therefore, the total contribution will be INR(60+260) which is equal to INR 320

Sample 2:

If the gross salary of an employee is 15,000 per month then,

  1. The employee contribution would be 0.75%*15,000 which is equal to INR 112.5
  2. The employer contribution would be 3.25%*15,000 which is equal to INR 487.5

Therefore, the total contribution will be INR(112.5+487.5) which is equal to INR 600

Sample 3:

If the gross salary of an employee is 21,000 per month then,

  1. The employee’s contribution would be 0.75%*21,000 which is equal to INR 157.5
  2. The employer contribution would be 3.25%*21,000 which is equal to INR 682.5

Therefore, the total contribution will be INR(157.5+682.5) which is equal to INR 840

Points to remember

  1. The amount should be paid by the employer within 15 days of the last day of the month. 
  2. In case of delayed payment, the employer is liable to pay 12% per annum in respect of each day of delay.

How can Employers be compliant with ESI rules?

All employees of a covered unit, whose monthly incomes (excluding overtime, bonus, leave encashment) does not exceed Rs. 21,000 per month, are eligible to avail benefits under the Scheme. Employees earning daily average wage up to Rs. 176 are exempted from ESIC contribution.

Payroll administrators often face confusion when employees’ salaries change – especially when the monthly salary exceeds the ESI limits of Rs 21,000.

To handle this situation, the Employee state insurance has a concept of contribution periods during which the ESI contributions have to continue, even when the salary exceeds the maximum limits.

There are two contribution periods each of six months duration and two corresponding benefit periods also of six months duration.

Contribution Period Cash Benefit Period
1st April to 30th September 1st January of the following year to 30th June
1st October to 31st March of the following year 1st July to 31st December

After the commencement of a contribution period, even if the gross salary of an employee exceeds Rs. 21,000 monthly, the employee continues to be covered under the ESI scheme till the end of that contribution period. The contribution is deducted from the new salary. 

Example

If an employee salary increases in June from Rs. 18,000 (within ESI limit) to Rs.  22,000 (above ESI limit),  the deductions for ESI will continue to happen till the end of the ESI contribution period i.e., September

And the deduction amount for both the employee and employer will be calculated on the increased gross salary of Rs. 22,000

What are the benefits of ESIC registration?

The benefits of registering under this scheme are varied. Some of them are:

  1. Sickness benefits at the rate of 70% (in the form of salary), in case of any certified illness certified and which lasts for a maximum of 91 days in any year
  2. Medical Benefits to an employee and his family members
  3. Maternity Benefit to the women who are pregnant (paid leaves)
  4. If the death of the employee happens while on work – 90% of the salary is given to his dependents every month after the death of the employee
  5. Same as above in case of disability of the employee
  6. Funeral expenses
  7. Old age care medical expenses

Registration and Filing of Returns

An employer who is eligible to be registered as per the Employee State Insurance Act 1948 (“Act”) must do so by abiding by the following steps:

– An employer needs to keep all documents ready for reference.

– Next, an employer must file Form 1, which is available in PDF format on the ESIC website.

Note: ESIC will verify all the details and issue a 17 digit unique number. This unique number is required for all filings.

– Every employee will receive an ESI card post submission of the form stating all details by the employer.

 Documents required for registration 

  1. PAN card of the business.
  2. Address proof of business.
  3. The license was obtained under Shop and Establishment Act or Factories Act.
  4. Basic documents required as per the nature of entity – Articles of Association, Memorandum in case of a company, partnership deed in case of a partnership, and Limited Liability Partnership.
  5. Details of all directors, partners, and shareholders.
  6. Details of all employees along with their salary information.
  7. Bank details.

On successful registration of the establishment, returns can be filed online by the employer.

To file ESI returns online, the employer must follow the below-mentioned procedure:

– The login credentials will be available once registered. The same will be required for the online filing of returns.

– Once the login credentials are available, the employer must log in to the official website is www.esic.nic.in

–  He can log in using the credentials, there is a list of available actions. For instance, modify employee details, report an accident, and so on.

– To file the return, the employer must first verify if all the employee details are up to date and then file the return.

– The employer must then fill in the bank details and submit them to file the returns.

– After that, the employer can go to the ‘List of Actions’ and ‘Generate Challan’.

– The challan must be downloaded and documented for future reference and inspections.

How many returns are filed every year after the registration is finalized?

After the registration ESI Returns have to be filed twice a year. The following documents are required for the filing of the returns:

  1. Register of Attendance of the Employees
  2. Form 6 – Register
  3. Register of wages
  4. Register of any accidents which have happened on the premises of the business
  5. Monthly returns and challans

What is a Code number?

 It is a 17 digit unique identification number allotted to each of the factories/establishments registered under the provisions of the Act. Such a number is generated through the ESIC portal on submission of the pertinent information by the employer. It can also be generated on receipt of a Survey Report from the Social Security Officer. 

What is a Sub-code number? 

This is also a unique identification number allotted to a sub-unit, branch office, sales office, or Registered Office of a covered factory or establishment located in the same State or different State. The employer can register any Branch or Sales Office through ESIC Portal using his credentials and his unique primary registration code number. 

What are the returns/ reports to be submitted by the employer? 

The Employer has to submit the following records: 

1 Accident Report: Notice of Accident to the concerned Branch office in Form -12 should be submitted online within 24 hours. 

 2 Abstention verification Report: It is required to be submitted to the Branch office as and when it is sought by the Branch Manager in respect of any IP.

3.Records including attendance, wages, and books of accounts, etc. in respect of the principal employer and records of the immediate employer as required by the Labour Laws.

 

 

 

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