ESI Calculation: What is the formula?

What is the Employee State Insurance Scheme (ESI)?

ESI stands for Employees’ State Insurance Scheme. It’s a program in India that helps workers financially when they face challenges like sickness, injury, or maternity.

How does it work?

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  Both employers and employees contribute money to a fund.

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  This fund is used to provide healthcare and other benefits to workers and their families in need.

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  The amount contributed is based on the employee’s Salary.

So, think of ESI as a safety net that helps catch you financially if you face unexpected situations.

How are Wages Defined According to the ESI Act?

As per the Employees’ State Insurance (ESI) Act, wages refer to the total cash amount an employee receives, including:

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  Basic Salary

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  Allowances (e.g., Dearness Allowance (DA), House Rent Allowance (HRA), medical allowance)

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  Payments during authorised leave, strike, or lock-out (excluding illegal or layoff situations)

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  Other regular payments received within two months (e.g., attendance bonus)

What it doesn’t include:

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  Employer contributions to provident or pension funds

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  Travel allowance

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  Gratuity

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  One-time payments for specific expenses (e.g., relocation allowance)

Remember, only a portion of these wages (up to Rs. 21,000) is considered for calculating ESI contributions from both employer and employee.

What stands for ESI Factory Act?

The Employees’ State Insurance Act, 1948 [Act No. 34 of 1948] [April 19th, 1948] This law aims to help workers when they’re sick, pregnant, or injured at work. It also covers other related matters for their benefit.

ESI Calculation Formula

Total ESI Contribution = Employers Contribution + Employees Contribution.

ESI calculation on Salary?

Want to know how much is deducted from your Salary for ESI (Employee State Insurance)?

It’s simple!

1. Two contributions: Both you and your employer contribute to ESI.
2. Employee contribution: You pay 0.75% of your gross Salary (total income before deductions).
3. Employer contribution: Your employer contributes 3.25% of your gross Salary.

Example

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  If your gross Salary is ₹10,000

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  Your contribution: ₹10,000 * 0.75% = ₹75

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  Employer contribution: ₹10,000 * 3.25% = ₹325

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  Total ESI contribution: ₹75 + ₹325 = ₹400

Remember

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  Employees earning a daily average wage of up to ₹176 are exempt from contributing. However, their employers still contribute their share.

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  These rates are subject to change, so it’s always good to check with your employer or the ESIC website for the latest information.

The collection of ESI contributions

Paying for Employee State Insurance (ESI) in India:

Both employers and employees contribute to ESI, a social security program for workers.

Here’s how it works:

1. Deduction: Employers deduct a small amount from employee salaries and add their contribution (total of around 4%).
2. Deposit: This combined amount must be deposited with the Employees State Insurance Corporation (ESIC) within 15 days of the month it was deducted.
3. Authorised Banks: You can pay at SBI and other authorised banks.

Simple tip: Remember, ESI contributions involve both employee and employer, and they need to be paid to ESIC within 15 days at authorised banks.

Time Period for ESI contributions and benefits

The Employees State Insurance (ESI) program has two contribution periods and two corresponding benefit periods, each lasting six months. Here’s a breakdown:

ESI Contribution Period

What does this mean for employees?

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  Your contributions are based on your Salary during the contribution period.

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  You become eligible for benefits during the corresponding benefit period.

What does this mean for employees?

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  Truptesh’s Salary in May 2021 was Rs 15,000, and it increased to Rs 21,000 in June 2021.

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  For the contribution period of April to September 2021, his contributions will be based on Rs 15,000 (April & May) and Rs 21,000 (June & September).

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  He becomes eligible for benefits in the following year, from January to June 2022.

Important Note:

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  This is a simplified explanation, and specific rules and exemptions may apply. For complete information, consult the official ESI website or relevant authorities.

ESIC Act Registration Benefits

The ESIC program offers various benefits for employees and their dependents in times of need. Here’s a simplified breakdown:

If you’re unemployed:

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  Get a monthly payment for up to 2 years due to job loss or permanent disability (not work-related).

If you’re sick:

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  Take medical leave for up to 91 days per year and receive 70% of your wages while recovering.

If you’re expecting a child:

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  Receive 100% of your wages for 26 weeks during your maternity leave.

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  Get 6 weeks of wages if you have a miscarriage.

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  Receive 12 weeks of wages if you adopt a child.

If you lose someone:

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  Your dependents may receive monthly payments if you die from a work-related injury.

If you’re disabled:

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  Receive a monthly payment if you become disabled due to a work-related accident.

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  The amount depends on the severity of your disability.

Healthcare:

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  Get medical coverage for yourself and your family members, including hospital bills and treatment costs.

Remember, ESIC provides a safety net in difficult situations, ensuring financial and medical support for you and your loved ones.

Filing an ESI returns

Employers need to file ESI returns:

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  This applies to businesses covered by the Employees’ State Insurance (ESI) Act of 1948.

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  You can download a form (Form 1) from the ESIC website (in PDF format), fill it out, and submit it.

ESI Filing Deadlines

Remember to file your ESI returns by these deadlines:

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  April - September contributions: Due November 12th of the same year.

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  October - March contributions: Due May 12th of the next year.

That’s it! No need to remember specific dates for past years. Just follow these two deadlines based on the contribution period.

Documents required to register for ESI in India

Here’s a simplified list of documents required to register for ESI in India:

Business details:

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  Proof of business address (like utility bill)

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  Business PAN card

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  Details of directors, partners, and shareholders (if applicable)

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  Business registration documents (like deeds or articles of association)

Employee details:

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  Salary structure and details of each employee

Bank details:

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  Bank account details

Remember, these are the general documents required. Specific requirements may vary depending on your situation. It’s always recommended to consult with a professional or the ESIC website for the latest information.

Employer contributions are liable for penalties if not paid

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  Employees and employers must deposit ESI as part of their salaries.

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  In the ESI act, not paying the employee’s contribution is a punishable offence.

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  Late payment, non-payment, or false payment can result in a fine of Rs 5,000 or a two-year jail term.

FAQ’s

What is the formula for calculating ESI based on Salary?

Calculating ESI contribution:

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  Employers: Contribute 3.25% of your gross Salary.

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  Employees: Contribute 0.75% of your gross Salary.

How Much is the ESI Limit?

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  Applies to combined wages, including basic pay, HRA, DA, medical allowance, and commission.

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  The limit is Rs. 21,000 per month.

What is the ESI calculation method?

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  Both employer and employee contribute a percentage of your gross Salary to a fund.

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  This fund is used to provide various benefits in difficult times.

ESI offers what benefits?

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  Unemployment Allowance

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  Dependant’s Benefit

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  Disablement Benefit

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  Maternity Benefit

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  Sickness Benefit

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  Medical Benefits