What is Employee State Insurance (ESI) and When is It Applicable

In an attempt to provide social security to Indian workers, the government introduced the Employees’ State Insurance (ESI) Scheme. ESI is a comprehensive social security scheme designed to accomplish the task of protecting ’employees’ in the organized sector against the events of sickness, maternity, disablement, and death due to employment injury and to provide medical care to insured persons and their families.

Managed by the Employees’ State Insurance Corporation (ESIC), a distinguished social security organization, the scheme stands as one of India’s most popular integrated need-based social insurance plans.

The ESI Corporation upholds and administers the ESI scheme following the rules and regulations stipulated under the Indian ESI Act of 1948. The fund is contributed from both the employee and their employer, ensuring a sustained corpus to help the insured in uncertain times.

For further clarity on employment-related schemes and requirements, professional guidance from knowledgeable sources such as a Chartered Accountant has proven immensely useful for many businesses. Recognized Chartered Accountants such as Ahuja & Ahuja, have extensive experience in understanding, explaining, and implementing the intricate rules and regulations of such schemes.

For seamless payroll and insurance handling, many businesses are increasingly opting for Payroll Outsourcing. By entrusting the laborious task of payroll to experts, businesses save precious time, ensuring accuracy, and staying compliant with all the government regulations.

In the upcoming sections of this article, we will delve deep into the benefits of the ESI Scheme, who stands eligible, how contributions are calculated, and what salary components apply for ESI deductions.

Benefits of ESI Scheme

The ESI Scheme offers a range of benefits to employees, ensuring their well-being and financial security. Let’s explore these benefits in detail:

1. Cash Benefits: The ESI Scheme provides financial support to insured employees during times of need. Here are the different cash benefits available:

• Sickness Benefit: In case an insured employee falls ill, the scheme offers cash benefits equivalent to 70% of their average daily wages. This benefit is provided for a maximum period of 91 days in a year.
• Maternity Benefit: Women employees are entitled to maternity benefits for a period not exceeding 26 weeks, which includes a maximum of eight weeks preceding the expected delivery.
• Disablement Benefit: In case an insured employee suffers a temporary or permanent disability due to employment-related injury, disablement benefits are provided as monthly payments. The amount is determined based on the extent of the disability.

2. Healthcare Benefits: Along with cash benefits, the ESI Scheme ensures the provision of comprehensive healthcare facilities to insured employees and their families. These healthcare benefits include:

• Medical Treatment: Insured employees and their dependents can avail medical treatment at ESI dispensaries, hospitals, and clinics. The scheme covers the cost of medical services, including consultations, medications, and diagnostic tests.
• Specialist Consultation: ESI hospitals have appointed various specialist doctors who provide consultation services to insured employees when necessary.
• Medicine Supply: The ESI Scheme covers the cost of essential medicines required for the treatment of insured employees.
• Hospitalization Expenses: In case of hospitalization, the scheme covers all hospitalization costs, including admission charges, nursing charges, bed charges, operation theater charges, and other related expenses.

These comprehensive benefits not only safeguard the interests of employees but also promote their overall well-being. Now that we have explored the benefits provided by the ESI Scheme, let’s move on to understand who is eligible for the scheme.

Eligibility for ESI Scheme

The ESI Scheme applies to various types of establishments, ensuring that a wide range of employees can benefit from its provisions. These establishments include corporates, factories, restaurants, cinema theaters, offices, medical and other institutions, to name a few. Such establishments are referred to as Covered Units under the ESI Scheme.

To determine if a unit qualifies as a Covered Unit, certain criteria need to be met. These criteria are as follows:

• Covered under Factory Act or Shops and Establishment Act: All units that are covered under the Factory Act or Shops and Establishment Act are eligible for the ESI Scheme.
• Number of Employees: The scheme is applicable to establishments where 10 or more people are employed, irrespective of their monthly earnings. This means that even if the employees have different salary levels, as long as there are 10 or more employees, the unit is required to comply with the ESI Scheme.
• Scheme-implemented Areas: The ESI Scheme is implemented in specific areas as per the government’s plan. Therefore, the eligibility of units also depends on their location and whether they fall within the scheme-implemented areas. The government aims to implement the ESI Scheme across the entire country by 2022, which means that eventually, all units will be considered Covered Units.

It is important to note that all establishments covered under the ESI Act and factories employing more than 10 employees, while paying wages below Rs. 21,000 per month (Rs. 25,000 for employees with disabilities), must register with the ESIC and contribute towards the ESI Scheme.

Now that we understand which establishments are eligible, let’s move on to identifying eligible employees and understanding the contribution process.

Eligible Employees and Contributions

To determine which employees are eligible for benefits under the ESI Scheme, the following factors need to be considered:

• Monthly Income: All employees of a covered unit whose monthly incomes (excluding overtime, bonus, leave encashment) do not exceed Rs. 21,000 per month are eligible to avail benefits under the scheme. Eligible employees should have their income within this threshold to qualify for the ESI Scheme.

The contribution rates for employees and employers for the financial year 2023-24 have been fixed by the ESIC. The employee’s contribution rate is 0.75% of their wages, while the employer’s contribution rate is 3.25% of the wages. These contributions help create the corpus for the ESI Scheme, ensuring funds are available to provide benefits to eligible employees.

However, it is important to note that employees earning a daily average wage up to Rs. 176 are exempted from contributing to the ESIC. In such cases, employers are still required to contribute their share towards the scheme.

When calculating ESI contributions, it is necessary to consider the components of an employee’s salary that are applicable. The contributions, both from the employee and the employer, are calculated based on the employee’s gross monthly salary. The gross monthly salary includes various elements such as basic pay, dearness allowance, city compensatory allowance, house rent allowance (HRA), incentives (including sales commissions), attendance and overtime payments, meal allowance, uniform allowance, and any other special allowances. However, it is important to note that the gross monthly salary does not include annual bonus, retrenchment compensation, and encashment of leave and gratuity.

Table Summarizing ESI Contributions

To provide a clear understanding of the ESI contributions, we have compiled the following table:

Contribution Type	Percentage of Wages
Employee Contribution	0.75%
Employer Contribution	3.25%

Please note that the contribution rates mentioned above are applicable for the financial year 2023-24.

Frequently Asked Questions (FAQs)

Is it mandatory for all employees to contribute to the ESI Scheme?

Yes, all eligible employees working in covered units are required to contribute to the ESI Scheme, except for those earning a daily average wage up to Rs. 176.

Are there any exemptions for employers in contributing to the ESI Scheme?

Employers are required to contribute their share towards the ESI Scheme for all eligible employees, irrespective of their daily average wage.

Can employees claim ESI benefits during maternity leave?

Yes, women employees are entitled to maternity benefits under the ESI Scheme, which provides financial support during the maternity period.

Is the ESI Scheme applicable to employees working in private companies?

Yes, the ESI Scheme is applicable to employees working in various types of establishments, including private companies, as long as the establishment meets the eligibility criteria.

Can employees avail cash benefits in case of temporary sickness?

Yes, temporary sickness benefits are provided to eligible employees, offering financial assistance for a specified period as per the scheme.