What is ESI?

Definition

Employees State Insurance is a contributory health and social security scheme under the Employees State Insurance Act 1948, covering employees earning up to a prescribed monthly wage ceiling, with contributions from both the employee and the employer.

How it works

ESI provides medical care, sickness benefit, maternity benefit, disability and dependants benefit through its own network of dispensaries and hospitals. Because coverage is tested against a wage ceiling, an employee can move out of coverage on a salary increase, and there are rules about when that takes effect within a contribution period.

What it means in India

The Act applies to specified establishments employing the prescribed number of persons, with the applicable threshold varying for some categories and states. The employee and employer contribution rates and the wage ceiling are fixed by rules and have been revised over the years, so check the rate currently notified rather than relying on a figure quoted in an article. Contribution periods are fixed six-month blocks, and an employee crossing the ceiling mid-period continues to contribute until the end of that period.

What people get wrong

• Dropping an employee from ESI the moment their salary crosses the ceiling. Contribution continues to the end of the contribution period in which the increase falls.
• Quoting a contribution rate from memory. The rates have been revised and the current notified rate is the one that applies.

Work out your own number

The arithmetic on this page is easier to check against a real salary than to follow in prose, so there is a free page that does it for you. No sign-up.

Terms this one depends on

More on statutory deductions and benefits

Where this shows up in practice

Almost everything on this page ends up as a line on a payslip or a figure in a register. Shiftelio keeps attendance, leave, salary structure and the statutory deductions in one place, so the number in the letter and the number in the payslip come from the same record.