Overview
Employee State Insurance (ESI) refers to the social security and health insurance scheme provided under the Employees’ State Insurance Act, 1948. While the Act sets the legal framework, in everyday terms when people say “ESI” they often mean the system of medical care and cash benefits it delivers. The scheme is administered by the Employees’ State Insurance Corporation (ESIC), an organization under the Ministry of Labour. ESI was designed on the principle of pooling contributions from employers and employees to provide protection to workers and their families against health-related eventualities such as illness, maternity, disability or death due to employment injury, and to offer medical care to the insured individuals. It is one of the largest social security schemes in India, covering millions of workers.
Coverage and Eligibility
ESI coverage is determined by the type of establishment and the wage of the employees:
• Covered Establishments: Broadly, ESI applies to non-seasonal factories using power and employing 10 or more persons, and non-power using manufacturing units and establishments employing 20 or more persons. Additionally, over the years, many states have extended ESI coverage to shops, hotels, restaurants, cinemas, road-motor transport undertakings, newspaper establishments, private educational and medical institutions, etc., typically with a threshold of 10 or more employees. In some states the threshold is still 20 for shops/commercial, but many reduced to 10 to expand coverage. Essentially, most organized sector entities with 10+ employees will likely be covered, except those which are already covered by alternative welfare schemes or are in exempted categories.
• Employee Eligibility: To be an “insured person” under ESI, an employee’s monthly wages must not exceed the prescribed ceiling, which is ₹21,000 per month (for most, as of latest update). This means if someone earns above ₹21,000 in gross wages, they are excluded from contributing to ESI (and thus not eligible for benefits), except if they were previously in ESI and their wage crossed 21k within the same contribution period, then they stay covered until the next contribution period cutoff. A slightly higher cap (₹25,000) is set for persons with disabilities to encourage their employment – such employees can be covered up to that amount. The wage includes basic, DA, HRA, overtime, and any allowance except traveling allowance, which is generally excluded for coverage calculation.
• It’s worth noting that once enrolled, employees remain insured for the benefit period corresponding to their contribution period. E.g., contributions in April-Sept allow benefits from Jan-June of next year (though medical benefit is from day one regardless of contribution length). So even if someone’s salary gets raised above the limit mid-year, they might still get benefits for a time. But generally, HR will stop their contribution deduction from the month they exceed and they won’t be counted as covered thereafter.
• Family Coverage: ESI doesn’t just cover the employee but also their dependents. This typically includes the spouse, dependent children (up to a certain age, currently daughters till marriage and sons up to 25 if studying, and indefinitely if disabled), and dependent parents. These family members are entitled to medical treatment under the scheme, and certain cash benefits (like widow pension or dependants’ benefits in case of death of worker).
ESI is gradually being extended to more workers (for instance, there are provisions in the new Social Security Code to possibly cover gig workers through a similar model someday, but currently gig workers are not in ESI).
Benefits of ESI
ESI is comprehensive, offering several types of benefits:
• Medical Benefit: This is arguably the core of ESI – providing full medical care to the insured person and their family. From primary care (through ESI dispensaries/clinics where insured can see doctors and get medicines) to secondary care (ESI panel hospitals, tie-up hospitals for specialized treatment, surgery, etc.) and even tertiary care for major diseases, ESI covers it. There’s no limit on the expenditure for treatment of an insured person or family member – it can range from outpatient medicines to hospitalization, surgery, ICU care. ESIC runs large hospitals and medical colleges in many regions, and where it doesn’t have its own, it empanels private hospitals to serve ESI patients. This medical coverage starts from day one of employment (there’s no waiting period to avail medical care). Even after leaving a job, an insured person and family can continue to get medical care for sometime (e.g., if someone has contributed for a certain period, they get medical care for self and family for say up to 3 months after employment, or longer under unemployment schemes).
• Sickness Benefit: This is a cash benefit for short-term inability to work due to illness. If an insured worker falls sick and is unable to work, they can get 70% of their average daily wage as Sickness Benefit, up to 91 days in a year, provided they have contributed for at least 78 days in the prior contribution period. This requires a medical certificate from ESI doctor. For certain specified long-term illnesses (like TB, cancer, etc., categorized under Extended Sickness Benefit), the benefit can extend up to 2 years at 80% of wages. This ensures an employee has some income even when off work due to health issues, so they can recover without extreme financial stress.
• Maternity Benefit: Female employees who are insured are entitled to maternity leave with full pay (100% of average daily wages). As updated by amendments aligning with Maternity Benefit Act, this is for 26 weeks for the birth of one or two surviving children (12 weeks for subsequent children), and 6 weeks for miscarriage, plus one month for sickness arising out of pregnancy. The ESI corporation pays this amount, not the employer (unlike non-ESI establishments where employer bears it under the Maternity Benefit Act). This is a crucial support for working women. Also, pre-natal and post-natal medical care is provided, and medical bonus could be given if confined in a non-ESI facility.
• Disablement Benefit: For injuries or occupational diseases arising out of employment, ESI provides disablement benefits. Temporary Disablement Benefit (TDB) is 90% of wage paid for the entire period the employee is unable to work due to the injury, as certified by ESI medical officer, from day one of entering insurable employment regardless of contributions (so if on first day someone gets injured, they still get it). Permanent Disablement Benefit (PDB) is a pension paid for life if the injury results in a permanent impairment. The amount is a percentage of the full rate (which is 90% of wages) corresponding to the loss of earning capacity determined by a Medical Board. For example, loss of a thumb might be considered 30% disability, so 27% of wages as pension for life; total permanent disability yields 90% of wage as monthly pension. There can be lump-sum settlements for minor disabilities if desired.
• Dependants’ Benefit: If an insured employee dies due to an employment injury or occupational disease, the dependants (spouse, minor children, and dependent parents, subject to conditions) receive periodic pension payments. The widow gets a share (something like 3/5 of full rate), each child gets a smaller share (2/5 each up to two children), etc., collectively not exceeding the 90% wage equivalent. These are paid monthly. This is essentially a form of life insurance payout in form of a pension, ensuring the family has ongoing income support after the worker’s death. Additionally, a one-time funeral expense (around ₹15,000 at present) is provided to whoever incurs the funeral costs.
• Other Benefits/Schemes: ESIC also has launched some additional schemes: for instance, the Rajiv Gandhi Shramik Kalyan Yojana (RGSKY) which provides unemployment allowance (for up to 24 months) to workers who lose their jobs involuntarily (due to closure, retrenchment, or disability) and have contributed for a certain period. There are also vocational rehabilitation schemes for disabled insured persons, etc. During extraordinary circumstances like the COVID pandemic, ESIC extended benefits or relaxed conditions (like extending medical benefits for unemployed or raising funeral benefits).
Employer Compliance and Responsibilities
Employers have to ensure compliance with ESI if they fall under its ambit:
• Registration: The company must register itself with ESIC immediately upon becoming coverable (hitting the employee count threshold). This is an online process now, generating a 17-digit Employer Code.
• Employee Registration: At the time of hiring,… (continued)
• Employee Registration: At the time of hiring a new employee who is eligible for ESI (i.e., earning within the wage limit), the employer must get that employee registered under the ESI scheme. This involves submitting the employee’s details to ESIC and obtaining an Insurance Number (if the employee is a first-time member) or linking a previously allotted Insurance Number. Nowadays, this is done online; employees are also issued an electronic Pehchan card (ESI identity card). The employer should ensure each covered employee and their dependents are enrolled so they can avail medical benefits.
• Contribution Deposits: Employers must deduct the employee’s ESI contribution (0.75% of wages) from each pay cycle and add their contribution (3.25%), then deposit the total 4% to the ESIC account. Contributions are typically due monthly, and the deadline is 15 days from the end of the month (for example, contributions for January must be paid by 15th February). Payment is made through prescribed challans (now via online portal). Timely payment is critical to keep employees eligible for benefits; delays can attract interest and penalties.
• Maintenance of Records and Filing: Employers are required to maintain records of all employees covered, their wages, and contributions. They also must file periodic returns with ESIC (for instance, bi-annual contribution returns were historically required, though with real-time online systems this is largely continuous now). Additionally, if any workplace accident or incident occurs that might entitle an employee to disablement benefit, the employer should file accident reports to ESIC. There are specific forms for various benefits that the employer needs to endorse or forward (e.g., forms for claiming sickness or maternity benefits often need employer’s certification of wages and absence).
• ESI Inspections: ESIC inspectors (now often called Social Security Officers) may inspect an establishment to verify compliance – including checking wage records to ensure all eligible employees are covered and contributions are paid on the full wages. Employers must cooperate and furnish all information requested. If an employer is found to have not enrolled some employees or under-reported wages to reduce contributions, ESIC can assess the dues and demand payment with penalty.
By fulfilling these obligations, employers enable their workforce to receive the intended benefits of the ESI scheme. Non-compliance not only risks legal action (with penalties that can include fines and prosecution) but also harms employees who may be denied critical healthcare or cash benefits when needed. Hence, ensuring end-to-end compliance – from registration to contribution deposit and facilitating claims – is a key part of HR and payroll responsibilities in any ESI-covered organization.
