Employee State Insurance Guide for Employers in India

March 5, 20201:38 pm3234 views
Employee State Insurance Guide for Employers in India
Employee State Insurance Guide for Employers in India

Employee State Insurance (ESI) scheme is an integrated measure of social insurance embodied in the Employee State Insurance Act which is designed to accomplish the task of protecting employees as defined in the Employee State Insurance Act, 1948. The act aims to protect Indian workers against the impact of incidences of sickness, maternity, disablement, and death due to employment injury and to provide medical care to insured persons and their families. 

ESI scheme is applicable only to those areas where the scheme is made available by the government through a notification. Currently, all factories, shops, and establishments located in implemented areas, where ten or more persons are employed should provide ESI policy within their workforce. Based on MOM India annual report, the government plans to implement ESI across the entire country by 2022, meaning that by that time all units will be considered as Covered Units. 

Employee State Insurance benefits for employers 

Employers who come under the purview of the ESI Act, 1948, might derive some benefits, such as employers are exempted from the applicability of maternity benefit act and employees’ compensation act, in respect of employees covered under ESI scheme. Other benefits are as follows: 

  • Employers have, at their disposal, a productive and well-secured workforce, which is essential for better productivity. 
  • Employers are absolved of any responsibility in times of physical distress of workers such as sickness, injury, or any physical disablement resulting in loss of wages. 
  • Any sum paid by way of contribution under the scheme is deducted in computing income under the Income Tax Act. 
  • Incentive scheme for employers for persons with disabilities. 

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Employer’s responsibilities 

Under the Employee State Insurance Corporation laws, employers must follow the code of conduct and registration flow which can be found here. In short, an employer’s responsibilities should cover the following important points. 

  • Registered within 15 days after the ESI Act becomes applicable through online registration from ESIC portal.  
  • Pay ESI contribution within 21 days of the following month, in which wages fall due. 
  • Upload requisite information in the ESIC web portal whenever events, such as marriage, birth or death entails any additions or deletions in the family particulars of an Insured Person, happened. 

Employer’s rights

Employer is also protected under the Act and has rights to: 

  • be represented on any important committees of Corporation, 
  • be supplied requisite Forms as obliged under the ESI Act, 
  • recover employees share of contribution, 
  • appeal to appellate authority of the ESIC in case of dispute on the claim, 
  • appeal to Employee Insurance Court if not satisfied with the findings of Appellate Authority, 
  • has the right to seek exemption and right of access to all essential information concerning the applicability of the Act, benefits, contribution, inspections, and other procedures. 

ESI calculation 

Based on the new amendments, employee contribution is now at 1.00 percent rate of wage and employer is at 4.00 percent rate of wages paid. The employer should also make a contribution form on its own share in favour of those employees whose daily average wage is Rs176 as these employees are exempted from their own contribution. ESIC contribution rates as per reduced w.e.f 1/7/2019 is as follows: 

Particulars Current RateReduced Rate
Employer4.57 percent3.25 percent
Employee1.75 percent0.75 percent

Moreover, the ESI Act covers employees whose salary income does not exceed Rs21,000 (excluding overtime, bonus, and leave encashment). If the gross salary of an employee exceeds Rs. 21,000 during the contribution period, the ESI contribution would be calculated on the new salary. Below is an example of the calculation. 

When an employee’s salary increases during the contribution period which is 1st April to 30th September and 1st October to 31st March of the following year, the employee is still covered under ESI scheme until the end of that contribution period. 

For example, if an employee’s gross wage increases in June to above limit, a deduction for ESI will continue to happen until the end of the ESI contribution period and the deduction amount for both employee and employer will be calculated on increased gross salary.

When the contribution period ends and the employee’s gross salary exceeds the min, there will be no further deduction and contribution are required. However, employees will still be covered under ESI till 30th June of the following year.

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