Employee State Insurance Act set the foundation for Employee State Insurance (ESI) in 1948 in India. It is one of the many saving schemes in India. Social security schemes safeguard the economically underprivileged and working class from financial instability.
For example, unemployment pay-outs ensure that people who lose jobs have some financial cushion to fall back on until they find another employment. Employment, health, retirement, childcare benefits, girl child benefits and food security are covered under different social security schemes.
Similarly, ESI or Employees’ State Insurance, CGHS (Central Government Health Scheme) provide a financial support structure for healthcare.
Other social security schemes include employment guarantee schemes such as:
Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA): Provides for at least 120 days of employment per household in a given year.
Atal Pension Yojana (APY): Supports retired citizens with a guaranteed pension that will help sustain old age when income from employment ceases.
It is a self-funded healthcare scheme where the members contribute to build their corpus. The advantage of this scheme is the concessional healthcare facilities provided to the members through the network of ESI hospitals.
ESI covers the following benefits:
Medical Care
Sickness Benefit
Maternity Benefit
Disablement Benefit
Dependants Benefit
Funeral and Confinement Expenses
Healthcare is an area of growing concern. The financial support ESI offers can help families retain their financial backbone and avoid falling into poverty due to unforeseen emergencies.
ESI is provided on the contribution of a nominal 0.75% of the wage by the employee. Whereas, the larger 3.25% chunk is borne by the employer. The amount of contribution depends on the total wages earned per month. The upper limit on wages to be eligible for ESI is Rs.21000 per month.
Example:
Ramesh earns Rs. 18,000 working in a pharmaceutical manufacturing plant.
Ramesh’ contribution: 0.75%*Rs.18000 = Rs. 135
Employer contribution: 3.25%*Rs.18000 = Rs. 585
A total contribution of Rs. 720 will be made, and the employer is accountable for depositing the amount with the ESIC in the same calendar month.
Employees working in organisations established under Factory Act and Shops & Establishments Act are eligible to be covered under ESIC. Their monthly wages should not exceed Rs. 21,000, and their employer should have ten or more employees registered on the payroll.
ESIC Contribution Rates refer to the percentage of wages that both employers and employees contribute to the program. Here's a breakdown:
| Who Pays | Contribution Rate | Additional Notes |
|---|---|---|
Employee | 0.75% of wages | Paid up to a maximum monthly wage of Rs. 21,000 |
Employer | 3.25% of employee's wages | Paid on total monthly wages (up to Rs. 21,000) |
Exception |
| Low-wage earners earning a daily average wage of up to Rs. 176 are exempt from employee contributions. The employer still contributes their share. |
The employer deducts the employee's contribution from their salary and contributes their own share on top of that. These contributions go towards funding the various benefits offered by the ESIC scheme. By contributing, employees become eligible for these benefits when needed.
Here are some additional points to note:
The contribution rates are set by the ESIC and can be revised from time to time. The current rates have been in effect since July 1, 2019.
The ESIC scheme applies to most factories and establishments with more than 10 employees (or 20 employees in some states). There's a wage ceiling of Rs. 21,000 per month, which means contributions are only calculated on wages up to that limit.
The ESIC scheme was established in 1948, making it one of the oldest social security programs in India.
The ESIC scheme offers a variety of benefits to covered employees and their dependents. Here's a breakdown of the key features and the benefits they provide:
Covers Family Members: From the first day of membership, the scheme covers medical and emergency care for the employed member and their dependents (spouse and unmarried children).
Specified/Critical Illnesses: Medical coverage is provided for specified critical illnesses along with cash benefits. If the employee has contributed for at least 78 days in the last 6 months, the scheme covers 70% of their wages for up to 91 days.
Maternity Benefit: Female employees can avail a maternity benefit of 26 weeks, extendable by an additional month. During this period, they are also eligible to receive 100% of their wages for up to 70 days of their contribution.
Unemployment Benefit: Members who lose their jobs due to factory closure, retrenchment, or permanent disability can receive benefits for up to three years. This includes:
Up to 50% of their last wages for a maximum of 2 years.
Medical care for the member and their family at ESI hospitals and dispensaries during the benefit period.
Expenses related to vocational training for skill development.
Medical Care Benefit: This is the primary benefit, available from day one for the member, their dependents, retired members, and permanently disabled members with their spouses (for a nominal annual premium).
Sickness Benefit: Employees who contribute for at least 78 days in a six-month period are eligible for sickness benefits. This provides 70% of their wages for up to 91 days in a year. The scheme also offers:
Extended Sickness Benefit (ESB): For critical and long-term illnesses, employees can receive 80% of their wages for up to two years after the initial 91 days.
Enhanced Sickness Benefit: Full wages are payable for family planning procedures (7 days for Vasectomy and 14 days for Tubectomy).
Disability Benefit: The scheme offers two types of disability benefits:
Temporary Disablement Benefit (TDB): Up to 90% of the wage is provided for the period of disablement, starting from day one of coverage.
Permanent Disablement Benefit (PDB): Depending on the extent of disability, up to 90% of the monthly wage is payable.
Maternity Benefit: As mentioned earlier, female members can avail of maternity benefits.
Dependents Benefit: In case of the member's death due to occupational hazards, dependent family members receive up to 90% of the deceased's wage every month.
Funeral & Confinement Benefit: The dependents receive Rs. 15,000 upon the member's death. Additionally, confinement benefit is provided to female members or spouses of female members where ESI facilities are unavailable.
Any establishment employing at least 10 employees or workers should register itself under ESIC. The number of employees/workers is 20 for Maharashtra and Chandigarh. Employees with a salary of up to Rs 21,000 or Rs 25,000 in the case of employees with disabilities are eligible for the ESI membership.
Eligible employees contribute 1.75% of their wages while the employer contributes 4.75%. Workers with a daily wage of Rs 50 or less are exempt from contributing to the scheme and only their employers will contribute.
The following documents are necessary for securing ESI membership:
Registration certificate under the Shops and Establishment Act or Factories Act.
Registration certificate for the company or partnership firm.
Article of Association and Memorandum of Association.
List of directors and shareholders of the company.
List of all employees and workers at the establishment.
Compensation details of all employees and workers.
PAN card details of the organisation and employees.
A cancelled cheque for the company bank account.
Attendance details of all employees.
Completed employer’s registration form (the form can be downloaded from the website and will be uploaded as well after being completed).
Once you have all the documents, you can follow the online registration process for ESI membership:
Step 1: Visit the ESIC Portal and ‘Sign Up’ as a new user.
Step 2: Enter your details like company/employer name, state, region, email ID, and phone number.
Step 3: Tick the checkbox to confirm your establishment’s labour contract - work force suppliers, security agencies, or contractors supplying labour categories.
Step 4: Submit the form, and you will receive an email with login credentials.
Step 5: Visit the ESIC Portal to ‘Login’.
Step 6: Use the username and password received in the email to ‘Login’ to your portal.
Step 7: Select ‘New Employer Registration’.
Step 8: Select the type of unit and click on submit.
Step 9: On the next page, enter the name of the unit, postal address, and the police station under whose jurisdiction your unit is.
Step 10: Enter if the building or the premises of the factory or the establishment is owned or hired, and click on ‘Next’ to proceed.
Step 11: Provide details like the nature of the business, category, PAN details, etc. and click ‘Next’.
Step 12: Enter the date of commencement of the establishment/factory and license details (if any).
Step 13: Provide the ownership details - the constitution of ownership, and details of owners. Click ‘Next’ after completing. You should ‘Save’ the form while you complete the details.
Step 14: Enter the total number of employees in your establishment and the number of employees earning less than Rs. 21,000 and click on ‘Save’.
Step 15: Enter the date when the first 10/20 employees were employed and click on ‘Employee Declaration Form’.
Step 16: Select ‘No’ if IP is not registered. If already registered, select ‘Yes’ and provide the IP number and date of joining. Click on ‘Continue’ once done.
Step 17: Enter the name of the IP and their details like the father’s name, address, date of birth, gender, marital status, family details, and date of joining. Click on the checkbox and click on ‘Submit’ once complete.
Step 18: ‘Close’ the new page after ensuring all details are complete.
Step 19: Select the nearest ESI branch and inspection division.
Step 20: Click the declaration checkbox and ‘Submit’. You’ll be redirected to a new page.
Step 21: On the next page, you will need to pay the first contribution. Check ‘Pay Initial Contribution’ and click ‘Submit’. You will receive a Challan Number for future reference.
Step 22: Continue to the required payment gateway and complete your payment. You will receive an ESI registration letter C-11 in your e-mail. The letter acts as proof of your successful registration.
When you started your career, your monthly wage may have been Rs. 21,000 or lower, which makes you eligible for benefits under the ESI Act. Over the years, you would have received increments. Your monthly wage now does not entitle you to this social security benefit provided by ESI.
However, it does not mean you have to go without a backup for funding emergency medical treatments. Once you no longer qualify for social security schemes like ESI, you should start considering commercial schemes.
You must look at other aspects of life where there is a risk and cover those with relevant life insurance policies. Some of these are listed below:
Term Life Insurance: A term plan provides affordable financial safety for your family. It gives your family financial protection in case of your unfortunate, untimely demise. They will receive the death benefit and manage expenses during your absence. If you have a term cover of Rs. 1 Crore and you pass away at 72, your nominee will receive this amount.
Learn more about Canara HSBC Life Insurance - iSelect Smart360 Term Plan.
Guaranteed Savings Plan: Guaranteed Saving Plans work best if you are looking for pay-outs to match future expenses at specific milestones. These plans are ideal for you if you are looking to build wealth safely as the returns are guaranteed.
Know more about Canara HSBC Life Insurance - iSelect Guaranteed Future.
Unit Linked Insurance Plans (ULIPs): ULIPs give you options to invest in both debt and equity instruments, because of which you benefit from the higher returns from equity while having the safety of debt. Social security schemes such as ESI are excellent options to protect yourself and make healthcare facilities available with a nominal investment. However, broader insurance plans give you more benefits. You must consider upgrading to an insurance plan when you can.
Similarly, life insurance plans and the Public Provident Fund (PPF) are savings schemes that help to build a habit of saving among the working class. These schemes help you save tax, grow your savings, and build a better future for your family. The Payment of Gratuity Act encourages employees to stay long within an organisation and reap loyalty rewards.
The Employees' State Insurance (ESI) scheme serves as a vital safety net for Indian workers and their dependents. By contributing a nominal amount, you gain access to a wide range of healthcare services, cash benefits during challenging times, and vocational training for employability.
ESI offers medical coverage, cash benefits for sickness, maternity, unemployment, disability, and even funeral expenses. The scheme is contributory, with both employers and employees making regular contributions. Registration is mandatory for establishments with 10 or more employees (20 in some states). ESI ensures financial security and peace of mind for covered individuals and their families.
ESIC Act: Employees' State Insurance Act, 1948
Social Security Scheme: A program that provides financial benefits to people in specific situations, like unemployment, retirement, or disability.
Contributory Scheme: A program where both employers and employees contribute financially.
Dependent: A spouse, child, or other person who relies on someone else for financial support.
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The full form of ESI is Employees’ State Insurance.
Employees and workers of establishments with 10 or more employees/workers are covered under the ESI scheme. The number goes to 20 for establishments and factories operating in Maharashtra and Chandigarh.
The due date for paying and filing monthly ESI contributions and returns is the 15th of every month.
Under ESI Act, non-payment delayed payment, or falsifying payments can lead to imprisonment and a fine. The imprisonment period can extend up to 2 years with a fine of up to Rs 5,000.
As per the act, all employees whose earnings are Rs. 15,000 or less per month, it is required for them to contribute 0.75% of their pay towards the ESI and 3.25% by the company towards ESI.
Employers with more than 10 employees or workers (20 in Maharashtra and Chandigarh) are legally required to register under ESIC. Employees or workers with salaries of less than Rs 21,000 p.m. (Rs 25,000 in the case of workers with disabilities) are automatically eligible for ESI membership.
The ESI Code number is a 17-digit code which is allotted to every establishment or factory registered under the Employees’ State Insurance (ESI) Act, 1948. The number is generated automatically by the ESIC portal after you complete the details and register as an employer.
You can check the claim status under ESIC using your smartphone with the following steps:
The employer is responsible for paying the employee’s and own parts of ESI contribution into the authorised ESIC account within 15 days of the previous month’s ending.
If an employee’s wages exceed Rs 21,000 (or Rs 25,000 in the case of an employee with a disability), the employee will remain a member of ESI until the contribution period ends in April or October. Thus, the employee will keep contributing as per the new wages until the period and membership ends.
The ESI Scheme applies to factories and establishments such as transport firms, hotels, restaurants, cinemas, newspapers, shops, and educational and medical Institutions. All such establishments employing 10 or more persons must avail of the ESI membership. The maximum exempt number for employers is 20 for establishments in Maharashtra and Chandigarh.
Employers should maintain the following records for ESI compliance:
Muster roll, wage record and books of Accounts
Accident Register in Form-11
An inspection book
The immediate employer must also maintain the Employees’ Register for the employees deployed to the principal employer.
