Overview
The Employees’ State Insurance Act, 1948 (ESI Act) established one of India’s first major social security schemes for workers. Under this Act, a self-financing insurance scheme was created to provide healthcare and cash benefits to employees in case of sickness, maternity, injury, or death due to employment. The Act led to the formation of the Employees’ State Insurance Corporation (ESIC), an autonomous corporation under the Ministry of Labour, which administers the ESI scheme. ESI is often considered a cornerstone of worker welfare in India, as it provides affordable medical treatment and financial support to millions of lower-income formal sector workers and their families.
Coverage and Applicability
The ESI Act applies to non-seasonal factories and certain other establishments such as shops, hotels, restaurants, road transport businesses, newspaper establishments, and private educational or medical institutions, provided they meet a threshold of employees. Initially, the Act applied to power-using factories with 10 or more workers and non-power using factories with 20 or more workers. Over time, its coverage has been extended by state governments to other classes of establishments (like shops or services) typically employing 10 or more persons (the threshold can vary by state, but 10 is a common norm for shops/establishments). Once an establishment comes under the Act, all its employees drawing wages below a certain limit are covered.
The employee wage threshold for ESI coverage is critical: as of current norms, employees earning up to ₹21,000 per month (basic + allowances) are eligible to be covered under ESI. This wage ceiling was last revised in 2017 (from ₹15,000 to ₹21,000) to expand coverage. It means if an employee’s gross wages exceed ₹21,000, that employee is generally not covered by the scheme (unless they were covered and their wages subsequently rose, in which case there’s a slight extension until end of contribution period). Certain employees with disabilities or female employees in some circumstances have a slightly higher threshold (₹25,000) for coverage as an incentive for their employment. All employees earning below the threshold, whether casual, temporary, or permanent, and whether directly hired or through a contractor, are counted for coverage, provided the establishment itself is under ESI’s purview.
Benefits under the ESI Scheme
The ESI scheme provides a comprehensive package of benefits to insured employees and their dependents. Key benefits include:
• Medical Benefit: Full medical care is provided to the insured person and their dependents from day one of employment, with no ceiling on expenditures. This covers outpatient treatment, hospitalization, medication, surgery, prenatal and postnatal care for women, etc., through a network of ESI dispensaries, clinics, and hospitals across India. Insured persons are given an ESIC identity card (or Pehchan card) which they can use to avail treatment at ESIC facilities or empanelled hospitals.
• Sickness Benefit: A cash allowance is paid to insured workers during periods of certified sickness or illness that necessitates abstention from work. This is typically paid at 70% of the wages, for a maximum of 91 days in a year, provided the employee has contributed for a specified period (e.g., at least 78 days in the contribution period). For certain long-term illnesses (defined as chronic diseases under Extended Sickness Benefit), this can be extended up to 2 years at a slightly enhanced rate (80% of wages).
• Maternity Benefit: Female employees who are insured under ESI are entitled to maternity benefit, which is a cash benefit equal to 100% of wages for a maternity leave period. As per the Act (and aligned with the Maternity Benefit Act provisions), this covers up to 26 weeks for childbirth (extendable in case of complications or multiple births) and shorter periods for miscarriage or tubectomy (medical termination). In addition to the cash benefit, medical care for confinement (delivery) and prenatal/postnatal care is provided.
• Disablement Benefit: If an insured worker suffers an employment injury (an accident or occupational disease arising out of and in the course of employment), ESI provides disablement benefits. For temporary disablement, a periodic cash benefit (approximately 90% of wages) is provided for the entire period the worker is unable to work. If the injury results in permanent disablement (partial or total), a percentage of that 90% of wages is paid for life, as a pension, according to the loss of earning capacity as determined by a medical board. This is a critical protection for injured workers.
• Dependants’ Benefit: In the unfortunate event that an insured employee dies due to an employment injury or occupational hazard, their dependents (spouse, minor children, and in some cases dependent parents) receive a regular pension. The amount is typically a share of the deceased worker’s wages (again about 90%) apportioned among the eligible dependents. This ensures the family has ongoing financial support after the loss of the breadwinner.
• Other Benefits: The ESI scheme also includes a funeral expense reimbursement (a lump sum payable to dependents towards funeral costs), and rehabilitation allowances for workers undergoing vocational rehabilitation due to disablement. Additionally, insured persons with long-term illnesses may receive enhanced sickness benefits as mentioned, and there are also provisions for physical aids (like prosthetics) if required after injuries.
Contributions and Funding
The ESI scheme is primarily funded by contributions from employers and employees, collected as a percentage of employees’ wages. Currently, the contribution rates are: 3.25% of wages payable by the employer, and 0.75% of wages payable by the employee, making a total of 4% of the wages (these rates were reduced in 2019 from the earlier 6.5% total to reduce the financial burden and encourage wider coverage). These contributions are deposited to the ESI fund. Employers are responsible for deducting the employee’s share from wages and remitting the combined contributions to ESIC, usually on a monthly basis. The government (both central and state) also contributes in a different way by providing grants or contributing the entire cost of medical care in some cases, and state governments bear a small portion of medical benefit expenses beyond a cap.
Employers must register their covered establishments with the ESIC and obtain an ESI Code number. Each individual employee who is covered is allotted an Insurance Number (which is now linked to a portable Pehchan card or even Aadhaar for identification). The contribution periods are fixed half-yearly (April-September and October-March), and corresponding benefit periods (after a short gap) determine eligibility for benefits.
Compliance Obligations for Employers
Under the ESI Act, employers have several critical compliance responsibilities:
• Registration: Any establishment coming under the Act must register with ESIC within the prescribed time (usually within 15 days of becoming coverable). Similarly, new employees who become eligible should be enrolled (their details submitted to ESIC) at the time of joining or when their wages fall under the threshold.
• Contribution Payment: Employers must calculate and remit the contributions (both their share and the employees’ share) by the 15th of the following month. This includes maintaining records of wages and contributions. Late payment attracts interest and potentially penalties.
• Maintenance of Records: Employers need to maintain an attendance register, a wages register, and records of contributions. They also must keep accident books to record any workplace injuries for reporting to ESIC. In the modern system, many of these filings are done online through the ESIC portal, but records should be available for inspection.
• Filing of Returns: Periodic returns (such as bi-annual or ad-hoc forms) have to be submitted to ESIC providing details of employees, contributions paid, and any changes in the workforce. Also, any occupational accident resulting in employee absence beyond 3 days must be reported to ESIC in the prescribed form, and if an employee dies on premises or due to employment, immediate notice is required.
• Facilitating Benefits: The employer should facilitate employees in claiming ESI benefits. For example, they must certify or sign certain benefit claim forms when needed (like for sickness/maternity), and generally ensure employees are aware of the ESI dispensary or panel hospital they are attached to. Also, employers often help distribute temporary identity cards or print out the ESI card for employees.
Non-compliance with the ESI Act can lead to penal action. The Act prescribes fines and even imprisonment for failure to pay contributions or obstructing inspectors. Moreover, if an employer fails to enroll eligible employees or pay contributions and a beneficiary thereby loses ESI benefits, the employer can be required to pay damages or prosecute. Thus, HR and payroll departments must be diligent in implementing ESI regulations, including tracking which employees fall under ESI, making timely deductions, and record-keeping.
